The GameStop Saga: Should Investors Be Concerned?

On the latest edition of Market Week in Review, Senior Investment Strategy Analyst Alex Cousley and Research Analyst Brian Yadao discussed what’s driving the intense price moves in shorted stocks like GameStop and AMC Entertainment. They also chatted about the rollout of COVID-19 vaccines around the world, in addition to key takeaways from the U.S. Federal Reserve (the Fed)’s recent policy meeting.

Is market sentiment turning euphoric amid the GameStop frenzy?

The week of Jan. 25 saw a dramatic surge in the prices of several heavily shorted stocks as retail investors piled into names like GameStop GME and AMC Entertainment AMC, with shares of GameStop rising nearly 400% at one point in the middle of the week before reversing course, Cousley said.

“This phenomenon, driven by high levels of trading through commission-free apps such as Robinhood, triggered a massive short squeeze and, ultimately, some restrictions from brokerages on the ability for individual investors to trade these names,” he explained. The story has dominated market headlines for several days, leading many investors to wonder how much attention they should be paying to the saga.

“At Russell Investments, we believe this is best answered by taking a step back and looking at the broader market through our three pillars of investing: cycle, valuation, and sentiment”, Cousley said. The strategist team’s sentiment measure does show some pockets of euphoria, he noted—especially in the options market, where the ratio between call and put options has risen to fairly extreme levels. However, the team doesn’t see extreme levels of euphoria when looking across a broader suite of market indicators, Cousley noted—although there are some signs of optimism.

“On the whole, while the GameStop saga is no doubt very exciting and interesting to follow, I believe it’s more of a sideshow. It’s more important, in my opinion, to focus on the early cycle recovery phase we’re in, and the dynamics driving it—such as fiscal stimulus and the rollout of COVID-19 vaccines,” Cousley stated.

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Disclosures: These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.

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