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Hello. Global stocks and US futures are pretty calm ahead of a busy day of earnings from companies like Apple, You’re here and Facebook.
The great action again this morning is in GameStop as retail investors cram into loss-making retailer like it’s the second coming Amazon. In today’s essay, I explain why the fallout from this crazy gamble won’t wear off anytime soon.
But first, let’s see what is moving the markets.
Market update
Asia
- The mainAsia Indexare mixed in the afternoon trade with Japan Nikkei high 0.3%.
- Bullish on vaccine adoption, IMF boosted his Outlook 2021 so that global growth + 4.2%, and revised upwards last year’s calculation.
- Fallout from 1 MB continue with Goldman Sachs disclose CEO David Solomon brought home $ 10 million less annual salary last year, a penalty for the bank’s involvement in the corruption scandal.
Europe
- the European scholarships were lower outside the doors with the Stoxx Europe 600 down 0.5% outdoors.
- LVMH shares are on the rise 1.7% after the luxury brand reported impressive sales growth on Tuesday, helped by strong Chinese demand.
- AstraZenecaThe bad week of the week just got harder. The drug manufacturer is to be sued by a U.S. pension fund for the results of the COVID-19 trial it revealed last November. It doesn’t matter if AZ’s shares increase by more than 6% Last year. During this time he is involved in a nasty dispute with the EU on supplies of said vaccine that Europe hasn’t even approved yet.
WE
- American Futures point to a lower opening. Tech stocks continue to lead the way with large caps Nasdaq 100 rally ahead of profits from Apple, Tesla and Facebook today.
- All the drama is around again GameStop, which represents more than 100% this morning in pre-market trading – that’s after climbing more than 90% yesterday. GME is a trade for those of you who have a strong stomach for volatility and don’t care about earning a dividend. A little like Bitcoin.
- Here is another Stock market rally 2021 story for you: Etsy jumped over seven% yesterday morning thanks to a four word tweet from Elon Musk. That’s it. Free marketing is always nice to have, but Jefferies analyst sees an “upside risk” of the tweet. And at the right time, Etsy closed down 2.1% yesterday.
Somewhere else
- Gold is falling, trades below $ 1850 / ounce.
- the dollar is up while stocks are falling.
- Gross is in place, with Brent to negotiate $ 56 / barrel.
- From 10 a.m. Rome time Bitcoin was broken down 2.6% at $ 31,300. Maybe the Bitcoin bulls have found a shiny new coin in GME.
***
Hedges against the retail army
To put it lightly, hedge funds have a retail problem.
If this YOLO GameStop Saga has taught us something is that we see an upward force in the markets with the power to exert incredible pain on the old guard.
The big question remains: will this mean collateral damage for the rest of us?
In an open letter posted to the Reddit forum r / WallStreetBets yesterday, the retail army delivered a warning shot to hedge funds like Melvin Capital, via CNBC, not to underestimate them anymore. That day traders prey on activist hedge funds, the rebels of yesteryear who attacked many big Wall Street thieves, is not lost on the big thieves on Wall Street.
I’m old enough to remember when the militant shorts were Davids of the stock market. Now we have a new group to take on, an army of retail traders who are pumping their ‘stonk’ choices. Twitter, Reddit, and TikTok with rocket emojis and measure their returns in “tendies,” or chicken tenders, of man-kid treats to hit a big bet.
But underestimate them at your peril.
Exhibit A: GameStop – GameStop! – was the most traded security in America yesterday, according to Bloomberg, with volumes that exceeded those of Apple, Tesla and Microsoft.
Exhibit B: Households are by far the biggest force in the $ 57 trillion U.S. stock market, according to Goldman Sachs. Goldman calculates that retail traders own more than a third (36%) of US stocks. What about hedge funds? Barely 3%. (A big HT on the Market Ear blog for this data breakdown.)
Exhibit C: Retail traders engage in their preferred trades through highly speculative call options. (FortuneJeff John Roberts has an excellent explainer Going back to 1992, five of the 10 most active days for call option volumes were this month, notes Goldman. A recap: This epic GameStop rally isn’t even a month old.
For years, retail was a fairly mundane slice of the market. That changed last year. The rise of Robinhood and super cheap app-based trading during the pandemic has really disrupted trading in stocks. I don’t see the genie returning to that bottle any time soon.
In fact, when I look at the GameStop stock price, it is now over $ 325 in pre-trade trading.
So if you think hedge funds are going to easily crush these guys like bugs, think again.
There are many more stones there to bid. And the retail army is hungry for more you would tend.
Aren’t we all?
***
Have a very good day everyone. I’ll see you here tomorrow… Until then, there’s more news below.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write tobullsheet@fortune.comor reply to this email with suggestions and comments.
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