Please ensure Javascript is enabled for purposes of website accessibility

GameStop, AMC Keep Swinging Wildly as Stock Markets Soar

By Dan Caplinger - Jan 28, 2021 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The overall market got a big boost on Thursday morning.

The attention of the investing world remains squarely focused on a handful of companies on Thursday morning, as shares of GameStop (GME 9.35%), AMC Entertainment Holdings (AMC 10.16%), and other stocks with high levels of short interest remained extremely volatile. Yet that didn't stop the overall market from regaining its footing after considerable declines on Wednesday. By 11 a.m. EST, the Dow Jones Industrial Average (^DJI 0.00%) was up 549 points to 30,852. The S&P 500 (^GSPC 2.02%) gained 62 points to 3,813, and the Nasdaq Composite (^IXIC 0.00%) powered higher by 154 points to 13,425.

What's happening with GameStop and AMC is a fascinating example of the interplay between Wall Street and individual investors. The responses that we've seen from across the investment community are an interesting wrinkle in what has become a hot-button issue. Yet more broadly, market participants are trying to figure out whether signs of continuing economic weakness are bullish or bearish for the stock market over a much longer time frame.

Trading screen with a couple dozen lines of numbers.

Image source: Getty Images.

The latest on GameStop and AMC

Trading on short-squeezed stocks has been furious. As of 11 a.m. EST, GameStop had traded as high as $483 per share and as low as $196, and was near its lows of the day, down 44%. The stock had been halted several times for intraday volatility, as sharp moves triggered circuit breakers that called for short breaks in trading.

AMC saw big swings but wasn't as fortunate. Closing Wednesday near $20, the stock opened at $12, traded up to $16.50, but was down by more than 50% at around $9.20 per share in late morning trading.

Some interesting developments were worth noting:

  • Several brokerage companies put limits on the ability of their customers to buy shares of GameStop and other stocks like BlackBerry (BB 5.62%) that have seen immense volatility. Among them were the popular app-based Robinhood, and measures ranged from outright prohibition of new purchases to increased margin requirements.
  • AMC reported selling 3 million shares of stock on the open market. Unfortunately, it was early with its sale, raising just $305 million at an average of $4.81 per share. However, it also was able to retire $600 million of convertible debt, as the stock rose high enough to entice private equity investor Silver Lake to convert its bonds into shares at a lower price than the stock was fetching as of Wednesday.
  • Discord, a platform for online video gamers, removed Reddit's WallStreetBets server, citing violations of policies on hate speech and spreading misinformation.

The episode has resonated with individual investors. Many of them have directed their anger at Wall Street institutions and have claimed a victory of sorts for contributing to the moves in shares.

What will be more interesting is whether the disruptions spark broader inquiries into stock market trading. The rise of social media has made coordinated investing a lot easier, and the question of whether laws have been broken is one that could take considerable investigation -- and yield some fascinating insights.

With the economy, bad news is good news for investors

Another confusing thing about the current environment is that stocks often seem to move in the opposite direction of what you'd expect. For instance, today's move higher comes amid a mix of economic data.

On one hand, the nation's GDP rose at a 4% annualized rate in the fourth quarter. That was weaker than expected and meant that for the full year, GDP dropped 3.5%. That was the worst decline since 1946, immediately after the end of wartime production, and was dramatically worse than the economic contraction following the financial crisis in 2009.

Yet a positive sign came from the employment front. Jobless claims dropped below the 900,000 mark, which was better than expected. Even there, though, unemployment levels are considerably elevated from pre-pandemic conditions.

Investors hope this means that the federal government will be more likely to pass new stimulus measures to support the economy. That would boost prospects for the companies likely to benefit from consumer spending. Conversely, if things start to improve for the economy, then it could counterintuitively cause a pullback if it jeopardizes stimulus.

Short-term moves in the stock market can be hard to understand. But following the market dynamics can help explain things at least a bit -- and sticking to a long-term strategy is your best bet to avoid turbulence.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$100.38 (9.35%) $8.58
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,223.42 (0.00%) $0.00
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,088.85 (2.02%) $80.84
BlackBerry Stock Quote
BlackBerry
BB
$6.01 (5.62%) $0.32
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,662.79 (0.00%) $0.00
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$12.90 (10.16%) $1.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.