GameStop Ascent Pauses After Reddit Forum’s Brief Outage
(Bloomberg) -- GameStop Corp. took a pause from its meteoric ascent on Thursday morning, after a brief outage of the Reddit forum whose users have fueled the stock’s surge.
The shares fell 6.5% to $325 at 4:54 a.m. New York time. The stock has advanced more than 1,700% this year, fueling a rally in retail trading across the board, leading some short sellers to throw in their towels.
Trading has remained highly volatile since the last regular U.S. session, in which the stock rose 135%. Gains were briefly pared postmarket after the Reddit page that has fueled the surge was made private and then later reopened by the group’s moderators. In the time the original WallStreetBets board was down, an alternate forum called Wallstreetbetsnew topped 350,000 members.
This month’s breathtaking gains in the stock have boosted GameStop’s market value to about $24 billion, making it bigger than more than a third of the companies in the S&P 500 Index. Only Plug Power Inc. is larger in the closely watched Russell 2000 Index, a far cry from the end of 2020 when GameStop, then a $1.3 billion company, was firmly in the middle of that gauge.
“This will end, and probably sooner than we expected,” said Marshall Front, chief investment officer at Front Barnett Associates in Chicago. “At the same time, the force and the exposure that have been revealed by Reddit isn’t going away because politicians will run with this like crazy, particularly those who are involved in oversight on the financial markets. We are probably going to see a very thorough investigation by the SEC.”
The day-trading phenomenon landed in Washington on Wednesday, when the White House press secretary said U.S. Treasury Secretary Janet Yellen and the Biden administration’s economic team are watching stock-market activity around GameStop and other heavily shorted companies. Federal Reserve Chair Jerome Powell dodged questions on the topic at his regular policy press conference.
Senator Elizabeth Warren weighed in, saying she intends to make sure securities regulators “wake up and do their jobs.” Not long after, the Securities and Exchange Commission said it is “actively monitoring” volatility in options and equities markets.
Other short-seller favorites such as Express Inc., AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc. also dropped in Thursday premarket trading, following a surge this week as hedge funds scrambled to cover their negative bets. In Europe, Unibail-Rodamco-Westfield, Ambu A/S and Pearson Plc all declined, while Reddit trader favorite Nokia Oyj gained as much as 8.6% before slumping to a 5% decline.
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