Larisa Yarovaya, Deputy Head of the Centre for Digital Finance, Lecturer in Finance, University of Southampton. ____
GameStop shares have gone soaring again. The Texan computer games retail chain at the heart of the stock market drama at the end of January surged from USD 44 to a high of around USD 200 on February 26 before sliding back to USD 120 at the time of writing. Institutional investors who had “short positions” against the stock, meaning that they were betting it was going to go down, were said to have racked up nearly USD 2bn losses from the rises.
Other stocks involved in the first wave of retail trading mania such as cinema group AMC Entertainment have followed a similar trajectory, doubling at one point and still almost 50% up on the calm of a few days earlier. So why are investors buying these stocks again?
The army of millions of investors from Reddit’s WallStreetBets community pushed GameStop shares from USD 20 to USD 480 during the January “short squeeze”, in which they drove hedge funds like Melvin Capital into heavy losses, after forcing them to liquidate massive bets against the stock.
As the GameStop price fell back in early February, many of these small investors were counting their losses. There have since been countless debates over the mania, including a congressional hearing in the US on February 18.
Online trading apps at the centre of the buying frenzy, such as Robinhood, have been variously accused of making it too easy for amateurs to take wild risks, enabling market manipulation, risking the financial stability of the wider system, and siding with hedge fund backers Citadel by heavily restricting buying in the stocks in question after prices rocketed.
Over the latter issue, multiple users filed lawsuits against Robinhood and Citadel, though according to a clause in Robinhood’s customer agreement, all disputes are to be settled in arbitration and not in the civil court system. Robinhood CEO Vlad Tenev has denied the allegations, offering his own explanation at the congressional hearing.
Meanwhile, the adopted leader of the WallStreetBets movement, Keith Gill (known as RoaringKitty and DeepFuckingValue on different platforms), has become the subject of a lawsuit himself. He stands accused of misrepresenting himself as an amateur and manipulating other users to follow his risky speculative strategies. As he memorably told congress during the February 18 hearing, “I like the stock”. The lawsuit has been ridiculed by Gill and on social media, triggering “I am not a cat” jokes and memes alike.
Understanding the phenomenon
While all these questions will continue, the new GME share price rally shows that it was not a one-off situation. It’s not completely clear why the shares have been targeted again. It could be linked to the fact that the congressional hearing has passed. It could be linked to the resignation of GameStop chief finance officer Jim Bell, signalling a change of direction in the company. Or it could be to do with the fact that short positions on the firm’s shares had risen again, possibly prompting amateur traders to buy bullish options in the stock which will pay out handsomely if the price keeps rising.
But at the same time, I would argue that none of these reasons properly explain what is happening here. After years of researching financial markets and specifically the new highly speculative cryptocurrency market, I can identify three main reasons behind the phenomenon.
First, it is about the expansion of fintech and the ongoing decentralisation of the financial market. New technologies such as easy trading apps provide access to financial markets to a large number of amateurs. They enable financial liberalisation and autonomy from the major banks and the other institutions that control the market, just like cryptocurrencies do, and this has mass appeal. Finance scholars have named this effect “crypto-exuberance”.
Second, it’s an extension of the meme culture of millennials and generation Z “zoomers”, in which emotions are expressed with images, sounds, videos, emojis and abstract humour. Social media posts might contain sequences of unidentifiable nonsense, offensive terms and never-ending slang.
This all makes it harder to assess the sentiments behind them. For example, behavioural finance researchers would normally use algorithms to extract investor sentiments from Twitter posts, Google search trends and media headlines. But how would you use the academic software to analyse the content on r/WallStreetBets? This a huge challenge.
The third and perhaps least obvious driving force is the pandemic. A young generation of traders already blamed the older ones for the global financial crisis. The pandemic has amplified these feelings of social injustice and hatred against the money of the baby boomers, as millennials who grew up or studied during the past recession are now facing another one as young professionals.
The government restrictions and the social isolation that they have caused have also arguably spiked rebellious sentiments. At the same time, this situation creates an ideal environment for all sorts of market manipulations.
So if the second GameStop rally has surprised you, you don’t really need to find a rational explanation for it. GameStop’s stock rally is driven by a combination of cultural and environmental factors. The fact that these all appear to be more important to these amateur traders than making money is fascinating and should be studied. Besides GameStop, AMC and also the decent Dogecoin explosion, we will continue to observe more cases like this in the future.
Reports of the new Omicron variant of the coronavirus brought back memories of last summer when the fast-spreading Delta variant put a dent in the recovery and consumer confidence. This spooked investors on a traditionally quiet day in the market following Thanksgiving, leading to one of the worst days for stocks this year.
The Dow(INDU) logged its worst day since October 2020, while the S&P 500(SPX) had its worst performance since February. The Nasdaq Composite(COMP) recorded its steepest fall since September.
But just as the market quickly bounced back from its Delta fears, history appears to be repeating itself: Investors are taking a breath and sensing a buying opportunity.
The market opened in the green, with all three indexes sharply higher. The Dow opened up 375 points, or 1.1%, while the S&P rose 1.2%. The Nasdaq was 1.5% higher.
Other asset classes that were battered Friday — notably oil and cryptocurrencies — also recovered.
US oil prices were up 6.7%, or almost $5, at $72.69 per barrel around the time of the stock market open. That doesn’t totally make up for Friday’s drop, but it takes back a chunk of it.
The global oil benchmark Brent was up 5.7% at $76.84 per barrel.
Bitcoin was up more than 5%.
“Investors are trying to make sense of the latest Omicron Covid strain, but at this point more seems to be unknown than known,” said analysts at Bespoke Investments. “Clouding things even more, we’re unlikely to have definitive answers in the immediate future.”
US equities took a dive at the open and continued their downward path in the first half hour of trading, with the Dow more some 900 points lower. Oil prices were also badly hit.
Over the summer, the Delta variant spooked consumers and weighed on sectors like leisure and hospitality. Now investors and economists worry this new variant could do the same.
Wall Street was deep in the red early Friday, with the Dow(INDU) falling 2.5%, or about 900 points, in what is shaping up to be a volatile session. The broader S&P 500(SPX) tumbled 1.8% and the Nasdaq Composite(COMP) opened down 1.3%.
It’s a shortened trading session as the New York Stock Exchange will close at 1 pm ET after being closed Thursday for Thanksgiving. Reduced trading volume during this half-day session is also likely to exacerbate the swings in the market.
Nevertheless, it could shape up to be one of the worst days of the year for stocks.
But it’s not just stocks that aregetting a beating.
Oilprices are tumbling as well. US oil futures fell 7.4%, or nearly $6, to $72.51 per barrel around the time of the stock market open. The global benchmark Brent dropped 6.8% to $76.63 per barrel.
The US dollar, measured by the ICE US Dollar Index, which pegs it against its main rivals, was down 0.6% Friday morning.
Cryptocurrencies also felt the heat, dropping across the board. Bitcoin was down nearly 7% around the time of the stock market open, according to CoinDesk data.
Meanwhile, investors are pushing into safe haven investments. The 10-year US Treasury bond got more expensive and yields fell more than 0.1 percentage points to 1.52% Friday morning. Gold prices also jumped.
An NFT is “a unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible,” according to a blog post from Collins, published Wednesday.
Acting like virtual signatures, NFTs prove the authenticity of an artwork as the blockchain serves as incorruptible proof of ownership, meaning that “original” artworks and their owners can always be identified via the blockchain, even if an image or video is widely replicated.
In March, a digital artwork named “Everydays: The First 5000 days” sold for $69.3 million via Christie’s, making its creator, graphic designer Mike Winkelmann, better known as Beeple, one of the art market’s most valuable living artists.
The idea of a digital revolution is also captured in another of the dictionary’s candidates for Word of the Year: “crypto,” short for “cryptocurrency,” digital money that is challenging traditional forms of money, according to Collins.
It also named “metaverse” in its blog post, following Facebook’s announcement that it would change its corporate name to Meta.
Other selected words reflect the ongoing coronavirus pandemic, with “double-vaxxed” and “hybrid working” making the shortlist.
“Climate anxiety” reflects growing concern about the damage humans are doing to the planet, while “neopronoun” is a way of referring to a person without using their name or traditional markers of gender, such as “he” and “she.” Collins gives “xe,” “ze” and “ve” as examples of neopronouns.
Rounding out the shortlist are “Regencycore,” which is defined as a fashion aesthetic inspired by the Georgian-era clothing seen in the Netflix show “Bridgerton,” and “cheugy,” which is used to say that something is out of date or uncool.
In 2020, Collins named “lockdown” its Word of the Year, for obvious reasons, and, earlier this month, Oxford Languages made “vax” its pick for 2021.
Defined as “a colloquialism meaning either vaccine or vaccination as a noun and vaccinate as a verb,” vax was relatively rare until this year, the company, which publishes the Oxford English Dictionary, said.
In September, vax appeared more than 72 times more frequently than the year before, said Oxford Languages, which analyzes news content to track changes in the English language.