GameStop won't stop.
The stock added another 135% on Wednesday, bringing its total monthly gains to more than 400%. Its rise has been credited to the Reddit community WallStreetBets driving a short squeeze whereby short investors had to cover their positions. Tesla CEO Elon Musk even gave the move a shoutout, tweeting "Gamestonk!!" and linking to the WallStreetBets subreddit.
Rick Rieder, CIO of global fixed income at BlackRock Capital Investment, recommended investors keep an eye on their holdings, as a rebalancing of the market may come soon.
"Whenever you see this sort of volatility, this sort of aberrational movement, it does have an impact. It affects confidence and the stability of the markets. By the way, you get some rebalancing that takes place that people are on the wrong side or the right side of a dynamic like this. And so, you create these weird dynamics. One thing that I will tell you from putting money to work in the markets and thinking about it, from my perspective, you've just got to keep an eye on it, put it aside, and then do your research around whatever names you want to own. What are the durable opportunities in the marketplace? But, no doubt, this has an impact. Like a lot of things, it captures the imagination of people."
Greg Branch, managing partner of Veritas Financial, noted that the unusual nature of GameStop's rise makes it difficult to analyze.
"GameStop is another story altogether. There's no real way to look at that and explain it from a fundamental perspective. It's more in a camp of, is it being manipulated, for lack of a better word, by a concerted and intentional short squeeze? But there is no way to approach that or explain that in the fundamental terms that we're used to analyzing things."
Ryan Detrick, senior market strategist at LPL Financial, pulls historical comparisons for the wild market moves.
"The 10 most shorted stocks as of yesterday in the Russell 3000, they all were up significantly, most of them up between 50% and well over 100%. So this isn't just a GameStop story, this is a shorts story. People are trying to blow up the shorts, and the next question is: Is this 1999? Is this a bubble, is this frothy? We absolutely don't think so. Some of these stocks we know are going to eventually come back. That's usually how this works. But again, you look at put-to-call ratios being low ... Maybe it's a sign that, hey, the market could take a little break. ... We're almost to February ... in a post-election year. After a new president, from the inauguration till about the middle of March, stocks do pretty weak seasonally. So it all kind of makes sense. Maybe after a 72% rally in the S&P 500, more in small caps, more in the Nasdaq, maybe it's just time for a little break and people are a little too optimistic. But we would absolutely buy that dip here at LPL research, and we still think this is a bull market."
Joe Terranova, chief market strategist at Virtus Capital, spoke about the way the market demographics are changing and why regulations need to evolve with it.
"Classic example of an extension of leverage that has not been properly regulated. TD Ameritrade, congratulations. To all of the online platforms, what took you so long? To the regulators themselves, what allowed you, in the environment that we have been in in 2020, whether it's a hedge fund or an individual or an entity, to be able to short against the entire float of a stock? There's no reason behind that. So, the leverage aspect of this, you still have people that are able to deposit $50,000 in an account and go sell Best Buy, which is trading right now at $48, and sell 2,000 shares of it. Well, if that stock rallies $30, you're out your money. We're not properly monitoring leverage, that's the problem here. We're not properly placing guardrails in place."
Stephanie Link, chief investment strategist and portfolio manager at Hightower, expressed concern about the possible effects on the market.
"Never seen anything like it. And I think the overall broader averages are down because of this very thing. I think for those of us that are fundamental analysts and portfolio managers and investors, this is absolutely not normal. It's concerning. It's a bubble. This is where the bubble is right now in the marketplace, and it is alarming. It really is. And it's taking down the overall market, and I actually am thinking about, I'm looking at the 10-year [Treasury yield] today. ... I'm wondering if maybe all of this is starting to lead to a lot more concern about kind of broader implications ... This is not where I want to play. I was astounded that GameStop had 144% of their float short. I mean that was as of Dec. 31. That's, I mean ... you can't even!"
Chamath Palihapitiya, Social Capital CEO, laid out the way retail investors are honing their trading skills and advocated for more transparency in the market.
"These kids are catching up fast because they know what they're doing, too. And the reason they know what they're doing is because of companies like Google and things like the internet that just make every piece of information available. They give you access to computer resources. You could be a kid sitting at home, writing models into Google Cloud that gives you the same compute power as the best hedge fund, as the best investment bank. And this is what I'm trying to get across to you guys is we are leveling the playing field. It is happening ... I think we just have to embrace the fact that this is where we're going. You have to understand and believe that there is so much information out there that people can be on a level playing field. And that the most important thing we need to do now is shine the light into the corner of the market that is still opaque, and there is only one area. Companies are forced to publish every single thing about themselves, transparently, every quarter. Okay, ETFs publish their positions every day in some cases, retail talks about what they're doing with transparency, every minute. But institutional capital can still hide. And so, if you want to create a truly level playing field that evens these things out and minimizes volatility, force these folks to show you what they're actually doing under the covers. When you see that some of these funds are taking $50 billion and running it like $500 billion, I think we will all say, wait a minute, that's the real risk in the room."