Pedestrians pass the New York Stock Exchange, Wednesday, Jan. 27, 2021, in New York. Major indexes opened lower on Wall Street Friday, Jan. 29, while shares of GameStop, AMC and several other stocks being targeted by a rowdy community of amateur investors soared again. (AP Photo/John Minchillo)

GameStop soars again; Wall Street bends under the pressure

GameStop’s stock is back to the races Friday, and worries are growing about how much damage the frenzy over a handful of companies by Main Street investors will do to Wall Street overall. The S&P 500 dropped 2% and was heading for its worst week in months.

GameStop shot up more than 46% in afternoon trading, clawing back much of its steep loss from the day before, after Robinhood said it will allow customers to start buying some of the stock again. GameStop has been on a stupefying 1,600% run over the last three weeks and has become the battleground where swarms of smaller investors see themselves making an epic stand against the 1%.

The assault is directed squarely at hedge funds and other Wall Street titans that had bet the struggling video game retailer’s stock would fall. Those firms are taking sharp losses, and other investors say that’s pushing them to sell other stocks they own to raise cash. That, in turn, helps pull down parts of the market completely unrelated to the revolt underway by the cadre of smaller and novice investors.

The maniacal moves for GameStop and a few other formerly beaten-down stocks has drowned out many of the other issues weighing on markets, including the virus, vaccine rollouts and potential aid for the economy.

“Our consideration is whether this is something that is a long-term influence or contained within a handful of companies,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.

Meanwhile, calls for regulators to step in are growing louder on Capitol Hill, and the Securities and Exchange Commission says it’s carefully monitoring the situation.

The S&P 500 was on track for its worst week in three months, with a 3.1% loss, and its first monthly decline since October. Some of the heaviest weights on the index were Apple, Microsoft and other Big Tech stocks that have been big winners for professional and other investors over the last year.

The Dow Jones Industrial Average fell 535 points, or 1.8%, to 30,069, as of 2:24 p.m. Eastern time. The tech-heavy Nasdaq composite was 1.8% lower.

Other forces were also weighing on the market. Johnson & Johnson fell 3.6% after it said its vaccine appears to protect against COVID-19, though not as powerfully as rivals. Analysts said the results, which would require just one shot instead of the two required by other vaccine makers, were below expectations.

Some reports on the economy came in better than expected, though they remain weak. One showed Americans’ incomes rose in December, and another said their spending didn’t fall by as much as economists expected. The yield on the 10-year Treasury rallied to 1.08% from 1.03% from late Thursday.

“Our perspective is we still have a glass half full mentality,” Hainlin said. “Support from the Fed, a fiscal package and progress on the vaccines will ultimately overcome the challenges of COVID-19 and economic reopening.”

Elsewhere, investors watched virus infection spikes in Europe and Asia, renewed travel curbs and negotiations in Washington over President Joe Biden’s proposed $1.9 trillion economic aid package. Hopes for such stimulus for the economy have carried the S&P 500 and other major indexes back to record highs recently, along with enthusiasm about COVID-19 vaccines and the Federal Reserve’s pledge to keep the accelerator floored on its help for the economy. Low interest rates from the Fed can act like steroids for stocks and other investments.

“We are still moving towards a recovery from the pandemic, just a heck of a lot bumpier than anyone had expected,” said Stephen Innes of Axi in a report.

Wall Street’s focus remains squarely on GameStop and other moonshotting stocks. AMC Entertainment jumped 39.2%, and headphone company Koss vaulted 31.6%. After their success with GameStop, traders have been looking for other downtrodden stocks in the market where hedge funds and other Wall Street firms are betting on price drops.

By rallying together into these stocks, they are triggering something called a “short squeeze.” In that, a stock’s price can explode higher as investors who had bet on price declines scramble to get out of their trades.

The smaller investors, meanwhile, have been crowing about their empowerment and saying the financial elite are simply getting their comeuppance after years of pulling away from the rest of America.

“We’ve had their boot on our necks for so (expletive) long that the sudden rush of blood to our brains when we have just a (asterisk)chance(asterisk) of getting free has made me feel … well, it’s made me feel,” one user wrote on a Reddit discussion about GameStop stock.

“I’ve been isolated throughout this entire pandemic and live in a state far from home or any sense of community, ”another user replied. “I’d kind of just… given up. These last few weeks I’ve started caring again; feeling impassioned again; wanting more again.”

Most of Wall Street and other market watchers say they expect the smaller-pocketed investors who are pushing up GameStop to eventually get burned. The struggling retailer is expected to still lose money in its next fiscal year, and many analysts say its stock should be closer to $15 than $330.

In response, many users on Reddit have said they can keep up the pressure longer than hedge funds can stay solvent, although they often use more colorful language to say that.

The SEC said Friday that it is evaluating “the extreme price volatility of certain stocks’ trading prices,” warning that such volatility can expose investors to “rapid and severe losses and undermine market confidence.”

Both the Senate Banking Committee and the House Financial Services Committee plan to hold hearings on the GameStop controversy.

Rep. Brad Sherman, D-Calif., who heads the Financial Services subcommittee on investor protection, entrepreneurship and capital markets, said lawmakers will examine, for example, whether Robinhood may have blocked customers from buying the stocks at the behest of other market players with competing interests. Other issues to be aired include the need for fuller disclosure requirements for short sellers, as now prevail in Europe and Britain, Sherman suggested.

“There is a casino. To the extent there’s a casino, it ought to be fair,” he said. “The capital markets need to be less of a casino and more of a place where people … can invest in companies that are leading the new economy.”

___

AP Business Writers Joe McDonald and Marcy Gordon contributed.

Stan Choe, Damian J. Troise And Alex Veiga, The Associated Press

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