People walk by a GameStop store in Brooklyn
pencer Platt/Getty ImagesWhat goes up, must come down, and today gravity seems to be taking its toll on consumer-related stocks caught up in the short-squeeze frenzy.
GameStop (ticker: GME) stock is the biggest mover this morning, down 49%. AMC Entertainment Holdings (AMC) is tumbling 38.2%, Express (EXPR) is 32% lower, Bed Bath & Beyond (BBBY) is off 14.5%, Stitch Fix (SFIX) is 5.5% lower, and Macy’s (M) is down 3.6%. The SPDR S&P Retail ETF (XRT) is falling 6.8%.
In recent weeks, a number of retail stocks with high consumer interest have seen huge swings. GameStop is of course the poster child for this: With bears betting so heavily against the videogame retailer, an influx of money from small investors forced many shorts to give up and cover their positions, fueling a cycle of major gains.
To bet against a company, bears borrow stock, intending to buy it back later at a lower price. Short squeezes occur when a stock’s price rises, prompting bears to throw in the towel and buy the stock immediately to limit their losses. That can force other shorts to do the same, and the stock rapidly rises. That’s how GameStop stock rocketed to $483 recently from just over $17 at the start of 2021.
One issue is that the recent short squeeze—which have sent other stocks, including AMC, Bed Bath & Beyond, Macy’s, and Stitch Fix, flying—doesn’t reflect any underlying change in fundamentals that would point to a sustainably better future for the companies at the heart of the frenzy. The moves were sparked by small investors pouring money into the shares, not any particularly good news on the part of the companies, such as a robust earnings report, which can set off squeezes. And while some have been able to take advantage of their share price appreciation to an extent, there’s not a lot different about their outlooks today than at the start of the year.
Not that fundamentals have meant a lot in recent weeks: While plenty of these stocks have been hit with downgrades from analysts, that’s done little to curb their performance. Down days have usually been signaled by other factors, like restricted trading, some of which are still in place and could be restricting moves.
Otherwise, it’s hard to say exactly what’s fueling today’s move downward for the group. Some investors may be taking profits, while others are focusing attention elsewhere in the market, thanks to stimulus hopes and a full slate of corporate earnings. These factors have longer staying power, and could be helping the market get back to a more-normal pattern.
Write to Teresa Rivas at teresa.rivas@barrons.com
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February 02, 2021 at 11:38PM
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GameStop's Short Squeeze Is Now a Retail Rout - Barron's
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