Frankfurt, New York The tug-of-war between retail investors and hedge funds over Gamestop’s stock is keeping Wall Street in suspense. The titles of the video game retailer closed this Friday after further massive buy orders 68 percent up.
Investors went on the defensive in view of the high price fluctuations: The Dow Jones lost two percent to 29,983 points, as did the technology-heavy Nasdaq to 13,071 points. The broad S&P 500 lost 1.9 percent to 3714 points.
Over the course of the trading week, the S&P, Dow and Nasdaq each lost roughly 3.3 percent. On a monthly basis, the S&P fell 1.1 percent and the Dow two percent. The Nasdaq, however, gained 1.4 percent.
Several brokerage houses eased their restrictions on trading in Gamestop and other papers under pressure from regulators and politicians. Initially, the paper rose by over 200 percent. Most recently, the rate was 68 percent higher at $ 325. The papers from AMC Entertainment, which are also on the lists of gamblers, rose 53 percent, Koss by 52 percent.
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The Gamestop rate had risen by around 2000 percent in the past two weeks. Retail investors had forced hedge funds that had bet on falling prices to cancel their bets with concerted purchases and the resulting price increases in the corresponding stocks.
Brokers like Robinhood had temporarily banned further purchases, but not sales, and thus attracted the displeasure of US politicians. The US Securities and Exchange Commission said it was closely monitoring the events and would ensure the safety of investors and “fair, orderly and safe markets”. Shortly before the stock market closed, the attorney general of Texas also announced that it would deal with the matter. Wall Street does not have the right to restrict public access to the stock market, it said.
The fact that the Covid-19 vaccine from Johnson & Johnson (J&J) has a comparatively low effectiveness with 66 percent worldwide. “It’s good to have another player in the vaccine market, but the question is effectiveness. The concern is that if it is much less effective, investor and consumer confidence will be significantly lower, ”said Sam Stovall, chief investment strategist at analyst firm CFRA Research.
Glossary: The most important information about short sellers
In principle, hedge funds work like traditional investment funds. You collect money from investors and try to invest the capital as profitably as possible. In the ideal case, however, these returns are as independent as possible of the fluctuations on the stock and bond markets in order to achieve protection.
The funds take economic bets, for example, or they bet on price fluctuations in so-called special situations such as mergers and takeovers. The species of hedge funds also include fully automated trading systems that recognize and exploit patterns in the markets with the help of artificial intelligence.
The industry’s assets under management grew by a record $ 290 billion in the fourth quarter of 2020, according to data from Hedge Fund Research (HFR). This increased the inventory to a total of $ 3.6 trillion, which is also a high.
Glossary: Carsten Herz
When trading in certain financial products, it is not necessary for professional investors such as hedge funds to actually deposit the entire amount that is being traded in their trading account. A so-called margin, which is only a fraction of the actual volume, is sufficient.
If the markets turn, however, there is a “margin call”. It paraphrases the warning a trader receives if the capital in his account has fallen below the minimum required to hold the position open. He then has to inject more money or liquidate his positions.
This can result in self-reinforcing price movements that burden the entire market. For example, when hedge funds get caught on the wrong foot and have to sell profitable positions on a large scale in order to meet margin calls.
Experts speak of a “short squeeze” when investors who have speculated about a short sale have to subsequently stock up on company paper in order to secure their position.
Such cover purchases can drive prices up rapidly and trigger a chain reaction. This can happen if many short sellers are liquidating their bets at the same time, or more stocks have been sold short than are actually in circulation.
The best-known example in Germany of a short squeeze was the capricious price of VW when the takeover by Porsche failed in 2008. Because only a few shares were freely tradable, the price skyrocketed within a few days. Betting on a short squeeze is highly speculative.
J&J shares fell 3.5 percent. The papers of Pfizer however, gained up to two percent, the titles of Modern rose by 8.5 percent. The vaccines developed by the pharmaceutical competition have an effectiveness of around 95 percent.
“The market is adjusting to the reality that this crisis is unlikely to be over by the end of the first quarter, and this reset of expectations is inevitably affecting sentiment,” said Russ Mold of AJ Bell Investment.
Economic data put pressure on sentiment. Because the Americans are restricting their consumption in the face of the second corona wave. Your spending fell 0.2 percent in December compared to the previous month. It was the second decline in a row. Economists surveyed by the Reuters news agency had, however, expected a more pronounced minus of 0.4 percent for December. According to revised data, consumer spending even shrunk by 0.7 percent in November.
Look at the individual values
Siebert Financial: In the wake of the price turbulence surrounding the US video game retailer Gamestop, another US paper comes into focus. The shares of the US online broker Siebert Financial were already up around 610 percent before the market and rose by 236 percent at the opening. They closed at 121 percent up.
Caterpillar: Despite the corona crisis, the US construction machinery manufacturer’s profit did not decline as much as feared in the fourth quarter. Adjusted earnings are $ 2.12 per share, said Caterpillar With. Analysts had assumed $ 1.49 per share. In the previous year, earnings had been $ 2.71 per share. The group did not give an outlook for 2021. However, the share lost 0.8 percent.
Pharmaceutical values: Johnson & Johnson shares fell 3.5 percent after the US company’s Covid-19 vaccine showed a worldwide effectiveness of 66 percent according to a study. The Pfizer papers, however, gain up to two percent and the US-listed shares of the partner Biontech by 6.3 percent. Moderna titles even rose by 8.5 percent. The vaccines developed by the pharmaceutical competition have an effectiveness of around 95 percent.
Biogen: Shares in the US pharmaceutical company closed 5.5 percent after the FDA extended the trial period for its Alzheimer’s drug by three months. Accordingly, a decision on possible approval for the drug aducanumab should not be made until the beginning of June instead of March.
Chevron: Meanwhile, Chevron’s shares in the Dow sagged by more than four percent. The second largest US oil company continues to struggle with demand problems in the Corona crisis.
More: Norwegian oil fund generated a double-digit return in the Corona year