The attention of the investing world remains squarely focused on a handful of companies on Thursday morning, as shares of GameStop (GME 4.76%), AMC Entertainment Holdings (AMC 0.93%), 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 0.23%) was up 549 points to 30,852. The S&P 500 (^GSPC 0.80%) gained 62 points to 3,813, and the Nasdaq Composite (^IXIC 1.14%) 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) 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.