The stock market closed its worst week in three months. The Dow Jones, considered the benchmark index, fell 2.03%, while the Nasdaq did so by 2%
Wall Street closed the day this Friday with a fall of more than 2% , in what was a new day marked by volatility as a result of the confrontation between retail investors who have put large investment funds on the ropes through negotiation of shares of the company Gamestop.
According to provisional data at the end of operations on the New York Stock Exchange, the Dow Jones fell 622.52 points and fell below 30,000, to stand at 29,980.84 units. The selective S&P 500 cut 1.94% or 73.34 points, to 3,714.04 units; and the Nasdaq composite index, which brings together the most important technology companies, fell 2% or 266.46 points, to 13,070.69 units.
Investors arrived on Friday in a state of confusion and disorder due to the high volatility generated by the coordinated actions of retail investors, who are organized mostly through the social network Reddit and use commission-free brokerage applications such as Robinhood, from where they have also the price of stocks like the chain of cinemas AMC soared.
Several funds that bet down on the options market against these companies have been faced with the obligation to assume gigantic losses that could be around 20,000 million dollars, and many have asked for time to adjust their positions.
All sectors of Wall Street entered the middle of the day with losses, but these were especially bulky in energy, technology and communications.
A customer walks into a GameStop store in Round Lake Beach, Illinois (USA), this January 27, 2021. EFE / Tannen Maury
None of the 30 listed companies of the Dow Jones was in positive territory and the great advances were in values until this week without great interest, driven by retail investors coordinated on YouTube or on the social platform Reddit, especially since Robinhood raised this Friday its restrictions on trading those volatile securities.
The application has been forced to raise $ 1 billion in capital among its investors to meet the strong demand for liquidity from the platform , which led to a record not seen since the 2008 crisis on Wednesday.
“There is excessive leverage in the system and we are beginning to see signs that excessive leverage is going to reveal itself and create problems in the equity and asset markets beyond these last few days,” Matt said in a note. Maley, Miller Tabak Market Manager.
Stock brokers work on the New York Stock Exchange, United States. EFE / Justin Lane / Archive
The Wall Street Revolt
The “revolt” in the stock market that illustrates the struggle between young investors and finance moguls came almost 10 years after the Occupy Wall Street protest movement.
GameStop, far from offering a radiant model for growth in an era where online shopping, downloads or remote games have outsold physical sales, has its shares among the most under attack on Wall Street for short-term sales. This practice, common in large investment funds, consists of selling shares in advance betting on a fall in their prices in order to buy them back cheaper at a later date, and thus obtain a substantial profit.
But a group of stock traders, eager for risky financial bets, set out to oppose big names in short-selling finance, and began massively buying GameStop shares to inflate its price. With some three million subscribers, the Reddit site’s WallStreetBets forum, where internet users brag about their exploits or, more often, their stock market troubles with memes and sassy jokes, has been the primary tool for this unprecedented move. .
As a result, last Friday, GameStop (GME on the New York Stock Exchange) stock gained more than 50%. And it was just the beginning. Faced with this sudden rise, the funds that had bet on the downside of GME were forced to buy back the shares to limit their losses, causing a “short squeeze” (or “forced liquidation”), which increased the share price even more . GameStop was up 18% on Monday, then 93% on Tuesday and a whopping 135% on Wednesday.
While WallStreetBets members were ecstatic, some American media even spoke of a rebellion against the system.