Dow Jumps 250 Points, But GameStop Market Value Plunges $7 Billion As Shorts Cash Out

Topline

Despite a good start to Monday trading for both the broader market and recently booming meme stocks, shares of GameStop took a steep turn for the worst before the close after new data revealed the number of investors shorting the stock has fallen dramatically since last week’s price mania.

GameStop shares plunged 30% Monday.

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Key Facts

After posting their worst weekly performances since late October last week, the Dow Jones industrial average ended the day up 229 points, or 0.8%, while the S&P 500 and tech-heavy Nasdaq jumped about 1.6% and 2.6%, respectively.

Meanwhile, shares of leading meme stock GameStop, which surged 400% last week, plunged 31% after market data firm S3 Partners said shorted shares of the stock fell by about 57% since Friday, with Managing Partner Ihor Dusaniwsky noting that short-sellers "have found opportunities and price exit points to trim their positions.”

Other meme stocks also lost momentum: AMC Entertainment ticked up just 0.3% after skyrocketing about 275% last week as online brokerage Robinhood relaxed its trading restrictions on Reddit-fueled stocks.

The softer gains come as Reddit traders turned attention to silver on Monday, pushing the commodity's price up 11% to an eight-year high in an attempt to once again squeeze money out of Wall Street firms, but many on the discussion board warned the effort would only divert attention away from meme stocks.

Heading up gains in the S&P, shares of International Flavors & Fragrances surged 14% after the firm announced it is set to complete its previously announced merger with DuPont's nutrition and biosciences business, creating a combined company with annual revenues of more than $11 billion

Global stocks also largely pushed higher after a lukewarm end to last week, with Japan’s Nikkei 225 closing up 1.6% Monday, while the United Kingdom’s FTSE 100 climbed 0.9% and Germany's DAX index 1.4%.

Tangent

President Joe Biden is set to meet with a group of ten centrist Republicans Monday to discuss a compromise bipartisan stimulus package. The group has proposed a slimmed-down $600 billion bill that’s far less than the president’s $1.9 trillion rescue bill. Meanwhile, Democrats are still preparing to move forward on Biden’s lofty proposal this week through a special process called budget reconciliation, which would only require 51 votes to pass in the Senate.

Crucial Quote

"The big question on stimulus isn’t so much whether Democrats use reconciliation for the first part of Biden’s fiscal agenda, but instead if doing so imperils the rest of his agenda, including infrastructure spending, and the answer to that is likely yes," Vital Knowledge Media Founder Adam Crisafulli said Monday, before dismissing GameStop, AMC and BlackBerry's ongoing rise (and silver's recent surge) as “nonsense.”

What To Watch For

It’s another huge week for earnings and economic data. Alibaba reports Tuesday morning, while Amazon and Alphabet headline earnings posted after the close. Then Spotify, eBay, PayPal and Qualcomm all report Wednesday. The January jobs report will be released Friday.

Key Background

The bull market rallied to new highs in early January thanks largely to lofty fiscal stimulus expectations, vaccine optimism and corporate earnings that keep surpassing expectations. But stocks ended last week with their biggest losses since the election as uncertainty tanked markets in late October. Still, experts seem bullish on the market’s long-term prospects–despite the short-term price volatility. Apple, Microsoft and Tesla all smashed earnings expectations last week, and in addition to the fiscal stimulus plans that could move forward as early as this week, Johnson & Johnson is likely to secure an emergency-use authorization for its one-dose Covid-19 vaccine candidate this month, bringing the total number of coronavirus vaccines on the market in the United States to three, notes Crisafulli.

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