GameStop, AMC fall on fears over interest rates

302
2
GameStop, AMC fall on fears over interest rates

REUTERS Brendan McDermid File Photo

Jan 24 Reuters -- Meme stocks GameStop Corp GME.N and AMC Entertainment AMC.N fell out of favor for investors due to the fear of a faster rise in interest rates and the prospects of speculative trading.

After surging 600% last year in a retail trading frenzy, GameStop fell 11% on Monday, extending a 28% slide from the beginning of 2022. AMC has lost a third of its value this year after a more than 1,100% increase in 2021, which has resulted in a more than a third of its value.

The value of heavily shorted stocks went up when an army of small-time investors coordinated on online message boards such as Reddit's r wallstreetbets, boosting their stock price and hurting bearish hedge funds.

Thomas Hayes, managing member at Great Hill Capital in New York said that as rates rise, the present value of future cash flows diminishes and it takes some speculation out of the market.

The rise in the cost of borrowing would mark the end of the easy money policy that had fueled the stock market rally, as U.S stocks are coming off their worst week since the start of the epidemic in March 2020.

There was a period where there was all this free money and low rates and margin availability. That's coming to an end, Hayes said.

Other stocks that have drawn interest from retail investors also fell. Koss Corp KOSS.O BlackBerry Avis Budget Group Inc CAR.O Workhorse Group Inc WKHS.O Bed Bath Beyond Inc BBBY.O dropped between 14% and 36% so far this month.

The $1.6 million Roundhill MEMEETF, which gives exposure to stocks with high short interest and elevated social media activity, has slumped in six of the seven weeks since its launch.

Joe Saluzzi, co-manager of trading at Themis Trading in New Jersey, said for more than a decade meme stocks stayed up to a level that was ridiculous.

Last week, Vanda Research said that the overall social media chatter on meme stocks has dropped substantially from early 2021, with some retail investor intrest around GameStop and AMC.

On Friday, the two stocks were among the top 10 most-traded shares among Fidelity customers with buy far outnumbering sell orders.

According to the latest data from the analytics company Ortex, short interest in both stocks has climbed back to about 20% each. Around 16% of AMC shares and 11% of GameStop's free float were in short position at the end of October last year.