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3 No let up in short squeeze, retail frenzy forces funds to cover

4 minute read

Shares of GameStop (GME.N) and AMC Entertainment Holdings (AMC.N) each more than doubled on Wednesday, forcing hedge funds to take heavy losses as they unloaded short positions, sparking calls for scrutiny of anonymous stock market trading posts on social media.

The short squeeze was so sharp that funds were selling long positions in stocks to pay for the losses, which contributed to a slide in Wall Street's main indexes.

The S&P 500 (.SPX) was off 1.4% in morning trade and the Nasdaq (.IXIC) was 1% lower.

INVESTOR COMMENTS

ELLIS PHIFER, MARKET STRATEGIST, RAYMOND JAMES, MEMPHIS, TENNESSEE

"People are looking at bonds as a safe haven. It all harkens

back to the short-seller market and the short-covering rally."

"It just becomes potentially endemic and it's like a virus. If it continues to spread, you get more margin calls, more firms having to potentially shut down and they're leveraged so they start selling more and you can end up in a bad spot."

SEAN O'HARA, PRESIDENT, PACER ETF DISTRIBUTORS, MALVERN, PENNSYLVANIA

"As weird as that may sound, what is partially responsible for what's going on today in the market is that there's a lot of selling going on to raise cash to cover some of these big shorts that are just getting pummeled,"

MATTHEW KEATOR, MANAGING PARTNER, THE KEATOR GROUP, LENOX, MASSACHUSETTS

"When you start to see this type of excessive exuberance at these levels, you have to stop and take pause and realize that valuations matter.

"It's a dangerous game to play from both sides of the spectrum, whether you're long or short. You get close enough to the fire you're going to get burned.

"At some point in time valuation is going to matter and it won't matter what social media is cheering the stock on. At some point in time that's going to be secondary to the fundamentals.

"It certainly is strange days for sure."

ERIC KUBY, CHIEF INVESTMENT OFFICER, NORTH STAR INVESTMENT MANAGEMENT CORP, CHICAGO

“This is something that is not going to continue much longer because it is completely decoupled from any kind of economic reality. This retail-driven short squeeze is kind of taking these exaggerated moves to new levels that I have never seen before. It is sort of remarkable. I don’t know when it is going to end, but I don't think it can continue much longer because it’s so obviously irrational that it has got to end really badly, in my opinion.”

MATTHIAS SCHEIBER, GLOBAL HEAD OF MULTI-ASSET SOLUTIONS, WELLS FARGO ASSET MANAGEMENT, LONDON

“A lot of this is driven by retail investors, and these platforms allow you to trade globally, so it's very easy for stocks like GameStop or Nokia to shoot up.”

“Given the liquidity that we have seen, this phenomenon might stay around for a while. But ultimately, it will come back to the fundamentals.”

"(On disrupting broader market) “Not at this point, it's too small. You could argue that we've seen big swings in stocks like Tesla that could impact the wider market. But that said, there is also a lot of institutional money in those stocks given their growth potential.”

“Retail trading can lead to short-term distortion similar to what we experienced in the early 2000s, but longer-term, investors will focus on the fundamentals.”

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