Capital Gain

Forget Bitcoin—GameStop just topped $300 in pre-market trading

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Forget Bitcoin—GameStop just topped $300 in pre-market trading


This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.

Good morning. Global stocks and U.S. futures are fairly quiet ahead of a busy day of corporate earnings from the likes of Apple, Tesla and Facebook.

The big action again this morning is in GameStop as retail investors pile into the loss-making retailer as if it were the second coming of Amazon. In today’s essay, I explain why the fallout from this bonkers bet won’t fade any time soon.

But first, let’s see what’s moving the markets.

Markets update

Asia

Europe

U.S.

Elsewhere

***

The hedgies vs. the retail army

To put it lightly, the hedge funds have a retail problem.

If this YOLO GameStop saga has taught us anything, it’s that we’re glimpsing an ascendant 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 on the Reddit forum r/WallStreetBets yesterday, the retail army delivered a warning shot to hedge funds like Melvin Capital, via CNBC, to stop underestimating them. That the day traders are going after activist hedge funds, the rebels of yesteryear who took aim at many a Wall Street high flier, is not lost on any Wall Street high fliers.

I’m old enough to remember when activist shorts were the Davids of the stock market. Now, we have a new group to contend with, an army of retail traders who pump their “stonk” picks on Twitter, Reddit and TikTok with rocket ship emojis and measure their returns in “tendies,” or chicken tenders, man-child treats for pulling off a big bet.

But underestimate them at your peril.

Exhibit A: GameStop—GameStop!—was the most traded stock in America yesterday, according to Bloomberg, with volumes that outpaced that of Apple, Tesla and Microsoft.

Exhibit B: According to Goldman Sachs, households are far and away the biggest force in the $57 trillion U.S. equities market. Goldman calculates retailer traders hold more than one-third (36%) of America’s stocks. And hedge funds? A mere 3%. (A big HT to the Market Ear blog for this data breakdown.)

Exhibit C: Retail traders are going all in on their favorite trades via highly speculative call options. (Fortune‘s Jeff John Roberts has a great explainer on what puts and calls mean.) Going back to 1992, five of the 10 most active single days for call options volumes occurred this month, Goldman notes. A recap: this epic GameStop rally is not even a month old.

For years, retail trading was a fairly unremarkable slice of the market. That changed last year. The rise of Robinhood and super-cheap, app-based trading during the pandemic has truly disrupted stock trading. I don’t see the genie going back in this bottle any time soon.

In fact, as I glance at the GameStop share price, it’s now above $325 in pre-market trading.

So if you’re thinking the hedge funds will easily squash these guys like bugs, think again.

There are plenty more stonks out there to bid up. And the retail army is hungry for more tendies.

Aren’t we all?

***

Have a nice 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 to bullsheet@fortune.com or reply to this email with suggestions and feedback.





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