Are We About to Have a New Crash in the Stock Market?

Monday, 2/22/21, was a rough day for the stock market. Almost every company in every industry on the tickers were red, from tech to automotive to retail, red EVERYWHERE. An example of the huge changes was Tesla starting Monday’s trading around $771 per share but by the end of the day it would drop to around $650. Many companies, especially in the tech sector, have had a rough week. Throughout the week, the market has started to somewhat settle, but if you look over the past 1-3 months, many companies are on a downward slope coming off record high prices. What is causing this huge downturn in the market?

The post Covid-19 boom is getting people excited about the possibility of being able to live life normally again. This excitement along with the increased availability of the Covid-19 vaccine has made people optimistic about companies being able to open up and operate like normal. This has caused people to invest back into recently forgotten industries such as retailers, airlines, cruise lines, hotels, and casinos which may have driven the market up prematurely. Since most of those industries are still not operating at full potential due to Covid-19 restrictions, this has led to large sell offs.

Another big factor potentially causing the downturn is fears of inflation and rising interest rates. When interest rates rise, people usually spend less and save more. The fact that the government has been giving away multiple stimulus packages and has plans to continue doing so has raised concerns about inflation because so much money has been created and pumped into the system. Raising interest rates is usually how the federal government would keep inflation low, by essentially encouraging saving instead of spending. This fear has caused the Federal Reserve Chairman, Jerome Powell, to come out on Wednesday and tell Congress that the central bank will not raise interest rates until they believe they have reached their goals on maximum employment and inflation.

When Federal Reserve Chairman, Jerome Powell, said they will not raise interest rates, this caused a sigh of relief on the stock market and trading and prices have started to go back up over the past couple days. The question now is how long will interest rates stay low and is it better to buy stocks now during higher volumes of trading or wait for prices to drop when interest rates do actually rise? Let me know your thoughts and leave a comment, are you investing now or waiting?

Investing 101: Short Sales and Game Stop

Bull. Bear. Short-selling. Hedge fund. Why is everyone obsessed with Game Stop?

There has been a lot talk about the stock market in the news lately and sometimes it’s hard to understand what everyone is talking about. I wanted to help clear the air and talk about some of the recent big stories in the news. I am not a professional trader or stock analyst, I am an MBA student who is extremely interested in researching and learning more about investing and the stock market and I want to share all the news and knowledge that I can with you.

The big story with Game Stop first started evolving even before late January, 2021 when the stock prices went crazy. It started when hedge funds, investment companies, decided they want to short sell the Game Stop stocks. A short sale is an investment or trading strategy that speculates on the decline in a stock price. This particular short sale happened when institutional investors (hedge funds) thought that Game Stop’s stock was over-valued and that the price was going to drop in the future. They then borrowed Game Stop stocks from brokers and sold them back into the market at what they believed was an over-valued price, intending to buy it back for cheap in the future.

This is when the Reddit group called wallstreetbets noticed that there were more shorted stocks for Game Stop than actual shares of it in existence. This wallstreetbets community spread the word on the shorted Game Stop stocks and encouraged normal retail investors to buy up all of the available Game Stop stocks, which forces the price higher, knowing that the hedge funds MUST pay back the brokers that initially lent them the stocks. This drove up the stock price from around $20 per share up to $300-$400 per share.

During the height of the stock price some trading apps like Robinhood disabled the ability for users to buy Game Stop stocks but they did allow users to sell shares, which helped drive down the stock price. There is a lot of debate about the reasoning and ethics behind halting trading for Game Stop, so much so that there will be a Congressional hearing with the CEO of Robinhood, CEOs of two of the hedge funds involved, the co-founder of Reddit, and the trader who initially spread the story. I will update you all after the hearing.

In the end, the price of Game Stop stock dropped significantly compared to its height of $400, and today is valued around $40, but it keeps dropping everyday. The story of Game Stop has helped expose some of the inefficiencies in the stock market and shed light on some questionable practices.

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