Wall Street had its worst week since October amid ongoing upheaval centered on amateur day traders’ efforts to add value to companies like GameStop.
The S&P 500 fell 1.9 percent on Friday and lagged more than 3 percent over the week.
GameStop shares rose again on Friday, jumping 100 percent through the market opening, as the under-attack investment app Robinhood partially reversed its decision to restrict trading in stocks, reportedly securing € 1 billion from its backers . Despite GameStop’s explosive open, the rest of the market lagged.
The troubled video game retailer was at the center of a battle between Reddit self-organized small investors who made a historic attempt to punish multi-billion dollar Wall Street hedge funds who wanted to sell their stocks short and sparked a trading frenzy.
Robinhood – which says its “mission is to democratize finances for everyone” – then decided to prevent users from buying GameStop stock on the back of “significant market volatility” which resulted in severe setbacks, including from Members of the US Congress as politically diverse like Ted Cruz and Alexandria Ocasio-Cortez, who signaled their support for a congressional hearing.
Joe Biden and Treasury Secretary Janet Yellen avoided questions about market volatility when they made their first appearance together at the White House on Friday.
The administration has largely referred questions about GameStop to the US Securities and Exchange Commission, rather than making an official statement on the developments.
Other lawmakers, including Senator Elizabeth Warren and Congressman Ilhan Omar, joined the fight on Friday.
Ms. Warren sent a letter to the SEC asking them to provide information about their intended response to the market volatility caused by the GameStop Short Squeeze.
“Casino-like fluctuations in GameStop’s stock prices reflect wild speculation that may not help GameStop employees or customers and lead to market instability. Today I told the SEC to explain exactly what it was doing to prevent market manipulation “she wrote on Twitter.
Ms. Omar said any billionaires who tried to influence stock trading apps like Robinhood to deter potential investors from buying “meme stocks” like GameStop and AMC should face jail time.
“Americans are told to invest in the market. But when they start threatening billionaire profits, strange things happen,” she said. “If someone on Wall Street short in certain stocks has used their power to deter the public from buying those stocks, send them to jail.”
Texas attorney general Ken Paxton said he would launch a corruption investigation into Robinhood, the communications app Discord, and undisclosed hedge funds over what he called “rigged” free market. Mr Paxton said the market should be “transparent” and “open”.
Citadel, a hedge fund that buys order flow data from Robinhood, said this had nothing to do with the app’s decision to stop buying GameStop stock. Robinhood confirmed the claim and issued a statement that it was in no way influenced by its providers.
In September, Citadel, which bailed out Melvin Capital, a hedge fund that held key short positions against GameStop, paid Robinhood more than $ 30 million for its order flow data.
In the market, stock prices fell as investors grew tired of the potential impact of the GameStop shakeup. The Dow lost 600 points on Friday and financial analysts fear that market volatility could be a sign of another impending bubble approaching a pop. The market closed with its worst week since October.
GameStop’s stock closed at $ 325, a gain of 131 percent for the day.
Market data suggests that hedge funds and other groups that took brief interests against GameStop are suffering more than $ 19 billion in losses.
Despite the massive loss, short position holders have largely resisted the onslaught of Reddit investors in hopes of bankrupting them and generating significant financial gains in the process.
Market data suggests that short interest in the stock has fallen just 8 percent over the past week, suggesting short holders remain confident that the ailing video game retailer’s share price will fall before being forced are to pay their bets.
There have been many winners in the market war driven by amateur investors.
AMC Theaters – another company Reddit investors had invested heavily in – avoided a $ 600 million debt it owed a private equity firm when the company decided to convert its corporate bonds into corporate stocks.
The cinema chain recently sent investors a letter pointing out the serious potential it should have due to declining revenues due to the Covid-19 pandemic. The settled debts give the company a certain leeway, at least in the short term.
A minor win was celebrated by a 10-year-old boy in San Antonio who cashed in 10 shares of GameStop stock received as a Kwanzaa gift from his mother two years ago. Jaydyn Carr made $ 3,200 off his stocks.