American Air Surges After Reddit Chatter on Squeezing Shorts

American Airlines Group Inc. surged the most in seven months, extending a day-earlier gain as the carrier was swept up in a rally among heavily shorted stocks being targeted in Reddit’s Wall Street Bets forum.

The stock initially soared more than 30% and led the S&P 500 Index, even though American ventured a cautious outlook Thursday on when a recovery would materialize after an unprecedented drop in air travel last year because of the coronavirus pandemic.

American Air Surges After Reddit Chatter on Squeezing Shorts

The gains aren’t “fundamentally driven, as American’s outlook is similar to others we have heard during this earnings cycle,” Helane Becker, an analyst at Cowen & Co., said in a note to clients. “The near-term outlook remains challenging and timing of any improvement is still uncertain.”

The surge underscored the disconnect between retail traders’ attacks on shorted stocks and the reality of an industry where demand cratered because of the pandemic. Like its U.S. peers, American is still reeling from losses, and the company’s narrower-than-expected deficit in the fourth quarter suggested nothing to justify a burst of market enthusiasm. American is the most shorted stock among major U.S. airlines.

“AAL the next GME?” said Reddit user u/cardiffgiantthe1st in an online discussion Wednesday, referring to the stock tickers of American and GameStop Corp., the video-game retailer that has been at the center of intense trading stoked by online discussions.

American jumped 15% to $20.84 at 10:06 a.m. in New York after advancing as much as 31% for the biggest intraday gain since June 5. The stock had increased as much as 87% before the start of regular trading.

The Fort Worth, Texas-based company had a market value of $10 billion at the close on Wednesday, the least among the four biggest U.S. airlines.

“As we look to the year ahead, 2021 will be a year of recovery,” Chief Executive Officer Doug Parker said in an earnings statement. “While we don’t know exactly when passenger demand will return, as vaccine distribution takes hold and travel restrictions are lifted, we will be ready.”

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