What’s Happening on Wall Street Right Now? A Brief Look into a Strange Situation

Story posted January 28, 2021 in News, CommRadio by DJ Morrissey

NEW YORK — A historic week is wrapping up on Wall Street, as institutional and retail investors clash over a handful of volatile stocks such as GameStop (GME) and AMC Theatres (AMC).

On Jan. 12, GameStop was worth around $20 per share. Two weeks later, the stock was trading well over $300 per share.

While this meteoric rise made thousands, sometimes millions of dollars for members of the subreddit r/WallStreetBets, hedge funds like Melvin Capital lost nearly $3 billion in one day.

Institutional investors (big banks, hedge funds) basically bet billions of dollars that GameStop would go bankrupt via a strategy called shorting. Retail investors (regular people with a Robinhood or Cash App account) on Reddit identified this trend within the market and decided to go the opposite way, buying as many shares of GameStop as possible. The company quickly became the most traded stock in the entire market, and its value soared by 400% in a week.

This caused what is called a “short squeeze,” where the same people who bet that the stock would go lower needed to buy shares as they increased in price as a form of insurance for their short position. Melvin Capital ended up being bailed out by two other hedge funds, Point 72 and Citadel.

Then, on the morning of Jan. 28, retail brokerages like Robinhood placed restrictions on trading GME and AMC, as well as a few other companies being traded at high volatility. These restrictions made it impossible for any Robinhood user to buy these stocks, only allowing people to sell their positions. Meanwhile, hedge funds are still able to buy and sell as they please, spawning an outcry of hypocrisy across social media.

So far, both sides have accused the other of illegal actions such as market manipulation. The Securities and Exchange Commission (SEC) as well as the Biden administration have indicated they are aware of the situation and looking into it.

In this time of volatility and confusion, only one thing can be certain: no one knows what will happen next.

 

DJ Morrissey is a senior majoring in broadcast journalism. To contact him, email him at djmorrissey21@gmail.com.

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DJ Morrissey

Senior / Broadcast Journalism

Daniel “DJ” Morrissey is a senior from Cresskill, New Jersey majoring in broadcast journalism at Penn State. He is a reporter and political analyst for CommRadio’s news department. Also, he has been a member of the John Curley Center for Sports Journalism since Spring 2020. You can contact him at .(JavaScript must be enabled to view this email address) or .(JavaScript must be enabled to view this email address).