GameStop stock returned to earth this week, plummeting 70% in the past two days after its wild surge to end January.
The stock's volatile market activity roused many questions around market regulation, retail trader activity, and future events in the market.
Five market analysts explain the different ways GameStop's unforgettable week could affect the market.
Kyle Bass, founder and CIO of Hayman Capital Management, notes the market benefits of short sellers and what could be lost given the heightened risk around short trading.
"You've got retail traders getting together and laser-focusing on companies, and so I think the risk profile of being a short seller has dramatically changed. I think the one negative consequence that I see coming out of all of this is the fact that short sellers are a natural balancing force in the market. Any past and current chairpersons of the SEC have said so. The work that's done in the short-selling community to police the market of frauds and Ponzi schemes and deceptions by management is a very positive balancing force. Unfortunately, what the most recent events are going to precipitate is the fact that short sellers, many of them are going to walk away and not do the work that they used to do over the last few decades."
Jim Cramer, host of CNBC's "Mad Money," said traders looking for stocks similar to GameStop will have a tough time.
"Unfortunately for the short sellers, they lost a fortune. Unfortunately for the people who are on the other side, there aren't — it's what we call at law school 'sui generis' — there aren't a lot of GameStops out there that are heavily shorted. People will say there are, but that's hyperbole. One of the things that I think people have to get away from is, 'Okay, with GameStop, what's the next one?' Is it, say, AMC? No, because Adam Aron, the CEO, he's announced that he has an at-the-money offering. Is it American Airlines? No, they took advantage of this and they issued stock. Is it Bed Bath & Beyond? No, Mark Tritton's got a turnaround, and so his is not likely ... But the idea that you could find a GameStop, I've been looking and looking and looking for the next GameStop, something that people could run with. It's hard. I can't find one!"
J.J. Kinahan, chief market strategist at TD Ameritrade, said the event brought new faces to the market who have more access to education and trading than ever before.
"One of the things that really stands out about it is if you look at how these things have happened in the past, many people are comparing these to past events. It's a bit different for one primary reason and that is that the tools that retail investors have are so much better, better than many professionals had 20 years ago, and the other thing is that instantaneous feedback. You can place the trade and within seconds, you have your trade back. Again, a lot different than it used to be in terms of how people were interacting with the market overall. Obviously, what's happened with GameStop and AMC over the last few days has been kind of a crazy phenomenon, if you will. I don't think I've ever seen anything really like it before, certainly from the retail community. When people are involved with the market overall, I still think it's a positive thing. We've seen so many new people come into the market over the last year and a half or so. ... Now, you have an event like this happen, I know everybody's throwing their arms up, etc., talking about restrictions, and one thing that I do want to clarify is people's thoughts about us restricting. We haven't restricted anything. We did raise capital requirements, so that you could buy and you could sell, but we weren't letting you do so with margin."
Jason Snipe, founder and chief investment officer of Odyssey Capital Advisors, also pointed to the sharpness of the retail trader demographic and noted that more regulations may be in the market's future.
"These sophisticated retail investors, I know that there's a lot of talk that these are unsophisticated folks ... this is a very sophisticated trade that was executed very well. When I look at how it impacted the broader markets as a whole, I also look at the short interest; short interest is historically low right now. We've seen the markets grow over the last decade tremendously. So, do I think that this is a blip in the road? To a certain degree, yes, but I also think the SEC will look at this to a certain degree — market manipulation, potentially, how folks are shorting stocks. I think that might have some impact, but I think they'll be reasonable here, and I think that in a large degree, this is great for the market with the emergence of the retail investor."
Rupal Bhansali, chief investment officer of Ariel Investments, explained how the retail trading moves as well as other market developments are pointing to a market top.
"I think you're seeing a lot of signs of a market top, and frankly this volatility that you described amongst retail investors chasing up a few names and trying to again speculate, frankly, rather than invest, is just symptomatic of what we see in the broader markets. The record flows into high yield, jumps on ETFs, the valuations in the market, issuance of SPACs, IPOs, all of these things typically tend to be signs of a market top. So, I think expectations need to reset with respect to a vaccine-led rally that we've seen underway since November, and I think the second half looks much more vulnerable, although the first half we may manage through."