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Wednesday, May 08, 2024

GameStop shares surge 53%, other 'meme stocks' rally on stimulus hopes

GameStop shares surge 53%, other 'meme stocks' rally on stimulus hopes

Shares of GameStop jumped more than 40% on Monday and other so-called meme stocks rallied, lifted by news from the video game retailer and expectations that investors may plow funds from coming stimulus checks into the equity market.
GameStop shares last traded up 41.2% at $194.50, their highest closing level since Feb. 1, after the company tapped shareholder and Chewy co-founder Ryan Cohen to spearhead a new committee to help the video game retail chain’s transition to e-commerce. The stock was up as much as 53% at the session high.

Other stocks favored by retail investors on forums such as Reddit’s WallStreetBets also rallied. Some market watchers cited the U.S. Senate’s passage of a $1.9 trillion stimulus bill including $1,400 direct payments to Americans.

“Maybe there’s a thought that if people are going to get a lot of money in their stimulus checks, that some of it’s going into the stock market,” said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group. “Some of it might go into those same names that we saw in late January, those message board Reddit-type stocks.”

Retail investors surveyed by Deutsche Bank last month said they would put more than a third of their stimulus checks into the stock market, which could represent inflows of around $170 billion, the bank said in a research note.

Retail buying of stocks and options has been among the factors driving markets higher over the past year, analysts said. Some 53% of respondents in the Deutsche Bank survey said they invested some funds from past stimulus checks in the stock market.

Other stocks popular on Reddit also soared, with AMC Entertainment up 15.4%, headphone maker Koss Corp climbing 27.5% and Rocket Companies up 3.0%.

The U.S. government should be able to start delivering $1,400 checks almost immediately once the aid bill is finalized and President Joe Biden signs it, tax experts say.

GameStop’s latest rally followed several wild swings in the share price from January. GameStop has become one of the hottest and most visible “meme stocks” followed on social media sites.

Cohen, a major shareholder who has pushed Gametop’s move away from its brick-and-mortar model, joined the board in January shortly before a social media frenzy drove a meteoric rise in which GameStop shares surged more than 1,600%.

Hedge funds that had bet against the stock were forced to unwind their short positions, a situation known as a “short squeeze.” GameStop pared most of those gains the following month.

Some analysts believe another short squeeze may be adding fuel to the stock’s recent gains. Short interest in GameStop was valued at $1.9 billion, or 25.38% of the stock’s float on Monday, compared to 32.56% about a week ago, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

Over the past week, short bets worth $538 million were covered, Dusaniwsky said.

“Shorts will continue to be squeezed out of their positions as GME’s stock price continues to trend upwards,” Dusaniwsky said in an email.

Recently, Cohen posted a cryptic tweet of an ice-cream cone, which some analysts viewed as a possible trigger for GameStop’s most recent rally.

Cohen’s RC Ventures activist firm reached a settlement with GameStop in January, giving Cohen seats on the company’s board.

GameStop said its Strategic Planning and Capital committee will help drive the latest e-commerce push. Along with Cohen, the committee will include Alan Attal, a Chewy alumni who joined the board as part of the RC Ventures settlement, and another board member Kurt Wolf.

GameStop’s sales through brick-and-mortar stores are under increasing pressure, as more customers gravitate toward digital downloads of console games.
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