The Week in Business: GameStop’s Bizarre Saga
Hello everybody. Here’s your breakdown of the top business and tech news to get you ready for the week to come. – Charlotte Cowles
What’s going on? (January 24-30)
Can’t stop, won’t stop
Who could have predicted that struggling video game retailer GameStop would hijack markets and cause Wall Street to collapse? The company’s shares rose a ridiculous 1,700 percent this month, but not because the company did something new or special. Instead, it became the focus of hordes of amateur traders – also known as retail investors – who banded together on Reddit message boards and propelled GameStop’s share price up by buying tons of its stock through apps like Robinhood and E-Trade. They followed similar tactics with outsiders like AMC Entertainment, BlackBerry, and American Airlines, and also increased their share prices. In doing so, they squeezed big Wall Street firms that were betting against the companies, forcing them to suffer huge losses.
GameStop versus Wall Street
Let us understand you
- Stocks of GameStop, the video game retailer, have risen because amateur investors starting at Reddit have bet heavily on the company’s stock.
- The wave gained momentum when large hedge funds short-sold GameStop stock – essentially betting against the company’s success.
- Sudden demand pushed the stock price from less than $ 20 in December to nearly $ 200 on Thursday. At least on paper.
- It’s not just GameStop. Amateur investors have supported other companies that many large investors have shunned, such as AMC and BlackBerry.
- This bubble around GameStop can force large investors to raise funds to cover their losses or dump stocks in other companies.
What is the endgame?
All the bubbles eventually burst, but the question is when. GameStop’s stock began to temporarily dump on Thursday after Robinhood and similar apps restricted trading. The crackdown stabilized the markets but was criticized by lawmakers who accused the apps of targeting Wall Street hedge funds. GameStop’s investors weren’t happy either, and the backlash led Robinhood to reverse its decision and resume “limited” trading a day later. The Takeaway: Now that trading apps allow millions of ordinary people to quickly and easily buy stocks from their living room, this probably won’t be the last time they team up on Wall Street.
Finished with a whimper
The latest report from the Commerce Department confirmed what you probably could have guessed: 2020 set a record for the worst economic decline in the country in a calendar year with at least one measure. The gross domestic product rose by only 1 percent in the last quarter, a significant slowdown compared to the last three months. Economists attributed that to dwindling tax support from the federal government at the end of the year and the recurrence of coronavirus cases during the holidays, which led to more business closings and closings. However, analysts also expect the country’s comeback to be more stable in 2021 as more government incentives are in sight and vaccine distribution is underway.
What’s next? (January 31 – February 6)
Goodbye, gas stations
Better make sure your garage has enough electrical outlets. General Motors has pledged to phase out gas-powered vehicles and switch entirely to zero-tailpipe cars and trucks by 2035. This is part of the company’s plan to become carbon neutral by 2040, one of the most ambitious goals in the auto industry. The move sets a higher standard for other automakers and could encourage the Biden government to push for even more aggressive policies to encourage companies to fight climate change.
Epstein’s long shadow
Leon Black, the executive director and chairman of Apollo Global Management, one of the world’s largest private equity firms, said he would step down from his leadership role by July after it was revealed he had sold more than $ 150 million to convicted sex offender Jeffrey Epstein have paid. Mr Epstein committed suicide in prison more than a year ago when he was charged with federal sex trafficking. However, many of his former employees continue to be affected by the proximity. An investigation found that Mr. Black’s payments were in compensation for consulting Mr. Epstein. They also explain how Mr Epstein was able to fund at least part of his extravagant lifestyle.
A good neighborhood for big tech
The Big Four tech giants have faced re-examination and legal threats from antitrust watchdogs in recent months. But will this affect their growth? Probably not, but we’ll learn more when Amazon and Alphabet, Google’s parent company, report their latest earnings in the coming week. Facebook earnings rose a whopping 53 percent in the last quarter, despite the company cracking down on a lawsuit filed by the Federal Trade Commission in December (kicking former President Donald J. Trump off the platform and many of his supporters as a result). The new iPhone 12 from Apple led to a sales increase of 21 percent and brought the company for the first time a quarterly sales of over 100 billion US dollars.
President Biden’s election for Secretary of the Treasury, former Federal Reserve Chairwoman Janet Yellen, was confirmed and sworn in. The Walgreens Boots Alliance has named Rosalind Brewer, now Chief Operating Officer at Starbucks, as its next chief executive officer and made her the only black woman currently running a Fortune 500 company. A small painting by Botticelli fetched $ 92.2 million at auction at Sotheby’s, a sign that the world’s richest are still ready to champion the visual arts.
And finally …
Has the pandemic forced any of your favorite local businesses to close? Tell us about it here. We collect stories about special neighborhood businesses that had to close last year and what this loss meant.