GameStop Corp. resumed its rally in early US trading, momentarily pushing the stock above $500, as day traders moved on from limits to the Reddit forum whose users have fueled the stock’s meteoric ascent.
The shares were up 40% at $490 at 7:13 a.m. New York time. They have advanced more than 1,700% this year, fueling a rally in retail trading across the board and leading some short sellers to throw in the towel.
Trading has remained volatile since the last regular US session, in which the stock rose 135%. Gains were briefly pared postmarket after the Reddit page that has fueled this month’s surge was made private and then later reopened by the group’s moderators. In the time the original WallStreetBets board was down, an alternate forum called Wallstreetbetsnew topped 350,000 members.
January’s breathtaking gains in the stock have boosted GameStop’s market value to about $24 billion, making it bigger than more than a third of the companies in the S&P 500 Index. Only Plug Power Inc. is larger in the closely-watched Russell 2000 Index, a far cry from the end of 2020 when GameStop, then a $1.3 billion company, was firmly in the middle of that gauge.
“This will end, and probably sooner than we expected,” said Marshall Front, chief investment officer at Front Barnett Associates in Chicago. “At the same time, the force and the exposure that have been revealed by Reddit isn’t going away because politicians will run with this like crazy, particularly those who are involved in oversight on the financial markets. We are probably going to see a very thorough investigation by the SEC.”
The Reddit community has dominated equities trading all week as retail traders target heavily shorted shares, causing ripples across the market. Investors including Melvin Capital closed out its short position on GameStop, while Muddy Waters’s Carson Block said he “massively reduced” its short positions in recent days to avoid getting burned.
The day-trading phenomenon landed in Washington on Wednesday, when the White House press secretary said US Treasury Secretary Janet Yellen and the Biden administration’s economic team are watching stock-market activity around GameStop and other heavily shorted companies. Federal Reserve Chair Jerome Powell dodged questions on the topic at his regular policy press conference.
Senator Elizabeth Warren weighed in, saying she intends to make sure securities regulators “wake up and do their jobs.” Not long after, the Securities and Exchange Commission said it is “actively monitoring” volatility in options and equities markets.
Other short-seller favorites such as Express Inc. and AMC Entertainment Holdings Inc. also rose in premarket. They have surged this week as hedge funds scrambled to cover their negative bets.