The five-day winning streak gave the three major U.S. indexes their best weekly performance since early November, with the Dow advancing nearly 3.9 percent, the S&P adding 4.7 percent and the Nasdaq gaining 6.1 percent.
Investors were undaunted by a disappointing employment report, which showed that the U.S. economy added a modest 49,000 jobs in January, signaling that the labor market continues to falter during the coronavirus pandemic. Slightly more than half of the 22 million jobs lost at the beginning of last year have been recovered.
Since Wall Street’s muscular gains of last summer, culminating in record high finishes for the year, the stock market has often seemed disconnected from the broader economy, which has been hit hard by the pandemic. That disconnect was amplified further as passionate traders inflated GameStop shares to record levels despite its troubled business fundamentals.
“The stock market is as stretched as ever,” James McDonald, chief executive of Hercules Investments, said. “Excess in company valuations are obvious, but now we are seeing extreme levels of margin borrowing and melt-ups in highly shorted or penny stocks. These are all signs of a market top.”
Robinhood, the popular online trading platform, announced Thursday that it had lifted all stock-buying restrictions on GameStop and the other sought-after names, including AMC Entertainment and BlackBerry.
GameStop shares closed up nearly 19.2 percent Friday at $63.76. But the stock has been gutted in recent days. It shed 42 percent on Thursday and is down more than 80 percent since its Jan. 29 close of $325. The stunning losses followed spectacular gains last month, which drew in many new investors chasing the hype and potential profits. GameStop shares ballooned by 1,600 percent in January.
The astounding levels of trading provoked an alarmed reaction from brokerage firms and securities regulators. On Thursday, Treasury Secretary Janet Yellen met with officials from the Securities and Exchange Commission and the Federal Reserve, among others, to discuss the market turbulence. Regulators face growing concerns over the use of social media to potentially manipulate stock trading and other financial issues the GameStop saga has surfaced, including the adequacy of online brokers’ capital reserves and calls for greater scrutiny of hedge funds.
During the chaos last week, Robinhood and other trading platforms blocked investors from purchasing GameStop for a time, and then set limits to the number of shares customers could purchase. While Robinhood has said it restricted the stocks to follow rules on capital requirements, the moves triggered dramatic price drops for GameStop. Traders, members of Congress and business leaders have lashed out against Robinhood, which appeared to them as tying the hands of clients in the middle of a trading frenzy.
“There are currently no temporary limits to increasing your positions,” stated Robinhood’s investing webpage as of Thursday morning.
For many investors who threw money at GameStop near its peak, the subsequent plunge has been painful. On the Reddit forum WallStreetBets, which helped fuel the GameStop surge, traders have shared images and stories revealing massive losses. But much of the commentary there strikes a defiant tone, as posters urge one another to hold onto their shares. “DON’T FORGET THIS, IT’S STILL A LONG TERM INVESTMENT, HOLD THOSE BAGS PROUDLY,” read one popular post.
This week, Keith Gill, the Massachusetts financial adviser who began posting about GameStop on Reddit in 2019 and has become a kind of folk hero on the forum shared an update of his GameStop holdings showing a daily loss over $13 million. On Wednesday, a screenshot he posted showed more than $22 million in total GameStop gains and cash. In the same post, he said he would take a break from sharing daily updates.
Rep. Maxine Waters (D-Calif.), the chair of the House Financial Services Committee, said on Wednesday that she wants Gill to testify in an upcoming hearing on the GameStop turbulence, in addition to representatives from GameStop, Robinhood, Reddit and from hedge funds.