Friday, April 23, 2021

GameStop surges again as Reddit crashes temporarily

Shares in GameStop surged on Wednesday in what could mark a return to frenzied trading that rocked markets last month. Trading in the US games firm was halted twice after shares more than doubled suddenly.

GameStop stock climbed by 104% until trading was halted for a second time. Moments before markets closed.

The rapid rise came as Reddit, the online home of activist investors that led the GameStop movement in January, went down temporarily.

The stock gained nearly 90% in after-hours trading. One day after the firm announced its chief financial officer Jim Bell would resign to help “accelerate GameStop’s transformation”.

Some investors have talked publicly and posted on social media site Reddit about not selling their shares in GameStop during last month’s volatile trading. Because of what they see as its long-term potential.

On Wednesday, Reddit was down for many users. The company did not say what caused the outage. But said it had identified the issue, fixed it and that “systems are beginning to recover.”

View original tweet on Twitter

It is the latest twist in a battle that has pitted amateur investors against Wall Street giants. Major hedge funds had bet billions of dollars that GameStop’s shares would fall.

But they have faced major losses after amateurs, swapping tips on social media sites like Reddit, drove up the share price by more than 700% in one week. The retail trading frenzy drew concern from regulators and has even led to a Congressional hearing in the US.

It’s often very difficult to understand exactly what drives a share price, and who is driving it. But it does once again appear that the hype on WallStreetBets, the influential subreddit, was part of the rise.

Reddit even went down at one point, though it’s not clear yet whether that was because of an increase in activity on the site.

Policy makers will be looking on closely. At a hearing last week in Washington, many politicians were concerned that ‘meme stocks’ could spike again. That can be beneficial to some investors when the stock is rising though not to investors.

If these kinds of spikes become more common, expect more pressure on legislators to step in.

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