What happened
Shares of General Motors (GM 0.40%) were trading lower on Wednesday. There was no bad news -- in fact, there was some modest good news. But it's possible that GM and other stocks are being hurt as funds sell long positions to cover short positions in surging "meme stocks" like GameStop.
As of 11:15 a.m. EST, GM's shares were down 5.7% from Tuesday's closing price.
So what
It has been hard to miss the recent surges in stocks like GameStop and AMC Entertainment Holdings that seem to be fueled by investors organizing on Reddit's r/WallStreetBets message board.
The investors' plan -- to the extent that there is one -- has been to use call options and direct purchases of the stocks to drive prices sharply higher, forcing hedge funds that had sold the stocks short to close their positions or suffer heavy losses. That's known as a short squeeze.
Here's the summary of where things stood on Wednesday morning: It's working. Those two stocks, and several others, have been driven sharply higher -- far beyond price levels that might be justified by their fundamentals.
So what about GM? Wall Street analysts have been talking up GM lately, on the strength of the company's ongoing transition to electric and autonomous vehicles and the good margins it has been generating from its newest trucks and SUVs.
GM's new pickup trucks helped power a strong profit margin last quarter, despite the pandemic. Image source: General Motors.
My thinking is that hedge funds that took long positions in GM for those good fundamental reasons might be selling GM now to cover busted short positions in the Reddit meme stocks.
Now what
I mentioned above that GM did have some good news to announce this morning: It has struck a deal to sell hydrogen fuel cells to heavy-truck giant Navistar (NAV +0.00%) for its upcoming zero-emissions semi. That won't have a huge impact on GM's bottom line, but it's a nice high-profile piece of new business.
I think auto investors holding GM need not worry too much about today's selling action (in fact, this might be an opportunity to add to positions, if you're so inclined). We'll look forward to learning more about GM's expectations for 2021 when the company reports earnings next month.
