Stocks were broadly higher in morning trading Tuesday, but shares of closely watched companies like GameStop and AMC Entertainment were trading sharply lower.
The S&P 500 rose 1.5% and the Dow Jones Industrial Average rose 538 points, or 1.8%, to 30,749 as of 10:56 a.m. Eastern. The Nasdaq rose 1.3%. Banks and big tech companies were among the early winners, as were several energy companies including Exxon Mobil and Marathon Petroleum, both of which reported better results than analysts were expecting. UPS rose after reporting record revenue. Treasury yields rose, as did crude oil prices.
While the broader market was solidly higher, most of Wall Street’s attention is on a set of beaten-down companies who have seen their shares surge due to intense online interest.
GameStop dropped 60% to roughly $90 a share, and AMC Entertainment lost 46.6% to $7.07 a share. Both companies have been in the spotlight for more than two weeks as an online community of investors pushed the stocks to astronomical levels.
Trading in those and several other stocks have been restricted by the popular online trading platform Robinhood since last last week following the bouts of extreme volatility. Robinhood needed to secure funding in order to meet deposit thresholds required by organizations that handle the trading orders placed by investors on its platform.
An online army of traders using the online site Reddit banded together for the past two weeks to snap up shares of GameStop, AMC and other struggling chains, stocks that have been heavily shorted (bets that the stock will fall) by a number of hedge funds. In the process, they’ve done heavy damage to those hedge funds in a stunning reversal of financial power on Wall Street.
But it’s not clear how much longer the Reddit traders can hold the line. Intense media and Wall Street interest pushed many traders into these stocks late last week, with GameStop going as high as $483 last Thursday. They began trading this year at just over $17 a share. The huge run-up in the stock price appears to have little to do with the future prospects of the mall-based retailer, which has been losing money consistently.
While a lot of people seem to be holding a line on some of these positions, the broader market is not showing many signs of strain because of it, said Darrell Cronk, chief investment officer of Wells Fargo Wealth and Investment Management.
“I hope the markets are moving away from some of the issues it dealt with last week and focusing on more of the true fundamentals,” Cronk said.
Uber rose 7% after the company said it would buy liquor delivery service Drizly for $1.1 billion in cash and stock.
Investors continue to focus on Washington. President Biden invited 10 moderate Republicans to the White House to discuss his proposed $1.9 trillion economic aid plan. Republicans earlier countered with an offer of $600 billion, or less than one-third of Biden’s proposed amount.
Investors bid up stocks heading into 2021 in expectation the rollout of coronavirus vaccines would allow global business and travel to return to normal. That optimism has been dented by infection spikes and disruptions in vaccine deliveries.
Treasury yields rose. The yield on the benchmark 10-year Treasury not rose to 1.11% from 1.06% late Monday.