(Bloomberg) — The meme rally that added about $11 billion in value to GameStop Corp. and AMC Entertainment Holdings Inc. Stocks stumbled on Wednesday, erasing a slew of gains in the first minutes of trading.
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GameStop stock fell as much as 33% on Wednesday, the biggest intraday drop since March 2021. AMC sank as much as 26% after the beleaguered movie theater chain took advantage of the stock’s rise through a special deal to reduce its debt. Shares more than doubled through the first two days of the week, before Wednesday’s decline wiped out more than $4 billion in market value between the two.
The latest rout brings more echoes of the meme craze that swept markets in early 2021. After that, GameStop shares rose more than 1,000% in a matter of weeks before quickly giving up much of the gains. The stock oscillated for several months, never fully regaining its early highs, before the retail mania finally dissipated.
Ben Laidler, global markets strategist at eToro, said the conditions that drove stock prices higher at that time no longer exist, so the rally this time may not last for long.
“This time it’s different,” he said. “The pandemic lockdown is over. Excess consumer savings are largely spent. The short positions in these stocks are much smaller but not small. Interest rates are much higher.”
AMC said in a filing on Wednesday that it will issue shares to reduce about $164 million of its debt in a private deal that values the stock, based on principal exchanged and accrued interest, at $7.33 per share. The company said Tuesday it had completed a stock offering to raise about $250 million, selling 72.5 million shares at an average price of $3.45 per share. The stock ended last week at $2.91, and closed Tuesday at $6.85 after a two-day rally.
Read more: AMC taps Meme stock momentum to cut $164 million in debt
Social media posts this week by Keith Gill, who spearheaded 2021’s meme mania under the moniker “Roaring Kitty,” effectively fueled this latest gathering. Gill rose to fame that year by rallying day traders on Reddit in an attempt to pressure GameStop short sellers.
Traders who bet on some of the most heavily shorted stocks incur huge losses on the stock. Meanwhile, options activity on GameStop continued to rise on Tuesday, with total trading volume reaching its highest level since 2022, with nearly 820,000 contracts changing hands.
AMC and GameStop were among the top 10 securities bought by retail investors on Tuesday, with daily inflows of $51 million and $16 million, respectively, said Giacomo Pierantoni, chief data officer at Vanda Research.
This week’s rally also boosted other high-risk stocks that were heavily shorted as traders eyed stocks beyond GameStop and AMC. Among the big winners this week is SunPower Corp. and Virgin Galactic Holdings Inc., both of which fell on Wednesday.
–With assistance from Billy Lipschultz, Michael Msika, and Claire Boston.
(Trading updates.)
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