GameStop is headed for inclusion in a large-cap stock index after its dizzying surge to record heights – but AMC will miss out with its spike coming after the deadline

gamestop store
John Minchillo/AP

  • GameStop could be listed alongside Amazon and Microsoft if included on the Russell 1000 Index.
  • AMC missed the May 7 cutoff to reach a capitalization higher than $7.3 billion.
  • The stocks have ballooned to the largest on the Russell 2000 Index thanks to retail traders.
  • See more stories on Insider’s business page.

GameStop could be one of the newest stocks on a list of the 1,000 largest companies thanks to the army of retail traders that have pushed the share price to dizzying highs.

But AMC Entertainment might have just missed the cutoff.

To be included in the Russell 1,000 Index – a group of the largest US stocks – a company should be worth at least $5.2 billion by May 7, according to a chart from FTSE Russell, which creates the indexes.

That puts retail-trader icon GameStop, which was worth about $12 billion as of the market close on May 7, in the running to be included. Being added to the index means GameStop would stand alongside behemoths like Apple, Microsoft, and Amazon.

But movie-theater chain AMC Entertainment, which led the lastest round of meme-stock mania over the last few weeks, missed the deadline to be included. The company was worth $4.3 billion as of the May 7 market-close. A couple weeks later, retail traders – mobilized on social media investing platforms like Reddit’s Wall Street Bets – forced a record rally in the stock. The company was worth $28.3 billion on Wednesday.

Another 56 stocks alongside GameStop will likely join the reorganized Russell 1000 Index when it’s officially reconstituted after the market close on June 25, Bloomberg reported, citing research from Goldman Sachs. Goldman Sachs did not immediately respond to Insider’s request for comment.

GameStop and AMC are currently listed on the Russell 2000 and have ballooned to the highest-valued stocks as a result of their meme-stock status, according to Bloomberg data.

Catherine Yoshimoto, FTSE Russell director of product management, said in a June 4 press release there has been a “resurgence in market capitalizations of small cap companies in the Russell 2000 reflecting the overall bounce back of US equity markets following the COVID-19 recession in early 2020.”

Meme stocks, many of which are small- to mid-cap companies, came into the spotlight earlier this year when retail traders drove a record rally in GameStop to squeeze short sellers. Other companies, such as BlackBerry, AMC, and Nokia, also skyrocketed. Since then, more companies have been added to the meme-stock bucket as retail traders continue to drive volatility in fan favorites.

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AMC rises as S&P upgrades the Reddit favorite, citing a path to sustainability for the theater operator

Movie patrons arrive to see a film at the AMC 16 theater in Burbank, California.
  • AMC shares rose as much as 8% early Friday after S&P Global Ratings raised the company’s credit rating.
  • The credit rating was upgraded to CCC+ from CCC- but leaves the rating still within a speculative grade.
  • Fundraising by AMC and prospects for more people buying movie tickets helps improves AMC’s financial picture.
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AMC shares climbed Friday, bolstered by an upgrade of its credit rating at S&P Global Ratings which said fundraising by the company should help put the movie-theater chain on steadier financial footing.

Shares of AMC gained 6.3% to $45.51 in premarket trade and rose as much as 8%. The company’s rating was lifted to CCC+ from CCC-, a move that still keeps the rating within the high-risk, or so-called junk bonds, category. Key to the improvement was AMC’s raising of $1.8 billion in total equity this year, including $818 million in proceeds last week.

“If the company uses the majority of these proceeds for debt reduction and refinances the expensive debt raised during the pandemic, it will materially reduce its interest burden, cash burn, and leverage,” said Scott Zari, a credit analyst at S&P Global Ratings, in a statement released Thursday. “This, coupled with our expectation that theater attendance will likely significantly improve in the second half of 2021, provides a path to a sustainable capital structure.”

AMC has cashed in on its status as a meme stock, with its share price zipping higher in recent weeks as numerous retail investors from social media sites such as Reddit’s WallStreetBets pour millions of dollars into its shares and band together to profit off short squeezes they create against hedge funds betting that the share price will fall. The stock has a 21% short interest rate, according to MarketBeat data.

S&P Global said AMC had a monthly cash burn of $120 million in the first quarter of this year. It now sees the company as having sufficient liquidity to maintain its operations while attendance at its movie theaters grows. S&P Global foresees the US box office begin the third quarter at about 50% to 75% of 2019 levels then in the fourth quarter peak at 80% to 90% compared with the same period. Attendance, however, is unlikely to reach pre-pandemic levels on an annual basis until 2023, it said.

S&P Global has a positive outlook on AMC’s credit, indicating it may raise the rating further if the company prioritizes reducing its heavy debt and interest burden.

Among AMC’s fundraising efforts, last week it made $230.5 million by selling new stock to Mudrick Capital Management at a premium. The investment firm later dumped the acquired shares and called them overvalued, according to a Bloomberg report.

Meanwhile, six AMC executives made more than $8 million last week after selling shares of the company during a massive rally, according to filings with the Securities and Exchange Commission.

Renewed interest in AMC’s stock was ignited in late May after its largest shareholder, private Chinese conglomerate Dalian Wanda Group, sold almost all of its remaining stake. Retail traders used that opportunity to buy more into the stock.

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Stocks recovered too quickly from the pandemic and could face a correction in the next year, a survey from the CFA Institute says

  • 45% of survey respondents told the CFA Institute that global stocks have bounced back too fast after the COVID-19 pandemic.
  • Equity markets are likely to hit a correction in one to three years as central banks rollback stimulus efforts.
  • The MSCI ACWI Index of large- to mid-cap stocks worldwide has gained about 25% so far in 2021.
  • See more stories on Insider’s business page.

Stocks have been resilient after last year’s plunge into a bear market because of the COVID-19 pandemic but the recovery has moved too fast in the eyes of many investment professionals who say equities could face a correction in the next 12 months.

45% of respondents in a CFA Institute survey agreed that equities in their respective markets have “recovered too quickly.” The institute Tuesday released the results of its survey, which tallied responses from 6,040 members worldwide.

The results indicate that financial analysts believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, the institute said.

Central banks worldwide cut interest rates to ultra-low levels and increased asset purchases, among other actions, to foster economic recovery from the coronavirus crisis that forced a widespread shutdown of businesses and threw millions of people out of work. Those moves along with vaccinations of people worldwide from the respiratory disease have encouraged investors to embrace so-called risk assets including stocks.

In the US, the S&P 500 has gained nearly 12% since the start of 2021. That gain follows its 16.3% rise in 2020 after sliding into a bear market in March 2020 because of worries about the world’s largest economy falling into recession. The tech-concentrated Nasdaq Composite has also advanced this year, picking up 7%, although many large-cap tech stocks have dropped in favor of small-cap stocks of companies who are closely exposed to economic recovery. The Nasdaq soared in 2020 by 43.6%.

Meanwhile, the MSCI ACWI Index, representing large- and mid-cap stocks in 23 developed and 27 emerging markets, has picked up about 25% this year following its 16.3% rise in 2020. The MSCI ACWI ETF has bulked up by 11% during 2021.

But stocks are likely to run into a correction within one to three years as central banks begin to rollback stimulus as their respective economies mend from the pandemic, the survey respondents told the CFA.

“To me, it also indicates to authorities that monetary stimulus is not a simple or linear lever to pull given the complexity of the economic and financial ecosystem; there will be unintended consequences to consider in the future,” Paul Andrews, managing director of research, advocacy and standards at the CFA Institute, said in a statement.

Minutes from the Federal Reserve policy meeting in April indicated were moving closer to beginning discussions about potentially tapering economic support. The Fed has held its benchmark interest rate near zero and has bought at least $120 billion in assets each month to aid the economy through the pandemic.

The CFA Institute said 150,024 individuals received a survey invitation and the total response rate was 4%. The margin of error was plus or minus 1.2%.

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The rotation from bitcoin into ether could point to a 2017-style correction in the crypto market, research firm says

  • The surge in prices for cryptocurrencies this year “has a whiff of deja vu”, reminiscent of bitcoin’s rally in 2017, said Vanda Research on Monday.
  • Bitcoin’s rally four years ago was followed by a correction and a jump in interest in then-lesser known cryptocurrencies like Ether.
  • Bitcoin and Dogecoin have slumped after hitting all-time highs this year.
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Prices for Bitcoin and other cryptocurrencies have boomed this year, in part on growing acceptance of digital assets by Wall Street and corporate America, but a broader correction in the market appears to be brewing and it’s reminiscent of bitcoin’s slide in 2017, one research firm said Monday.

Bitcoin so far in 2021 pushed above $1 trillion in market capitalization and hit an all-time high of $64,804.72 on April 14, the same day that Coinbase, the largest cryptocurrency exchange in the US, began trading as a public company. Dogecoin last week surged to a record high of over $0.73, according to CoinGecko, and ether, the token tied to the Ethereum blockchain, on Monday notched a record high of $4,221.20. Bitcoin and ether are the two largest cryptocurrencies by market capitalization.

“The meteoric rise in cryptocurrencies has a whiff of deja vu,” to bitcoin’s move in 2017 when a months-long rally catapulted it to become the best-performing crypto asset, said Vanda Research, which tracks retail investing activity, in a note Monday.

“When the rally started to look tired in November [2017], investors rotated to lesser-known altcoins like Ripple and Ethereum, which quickly became household names, too,” wrote Ben Onatibia, head of markets at Vanda Research. Ripple then peaked in early January 2018 while Ethereum held to its gains until mid-to-late January of that year, he said.

“In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit,” he said.

Now, the crypto market is in the midst of “precisely the same hot potato game,” that took place four years ago.

“Under the pretext of institutional support, retail investors started rotating out of speculative retail stocks and pouring their money into Bitcoin,” Vanda Research said in its note. Following the most recent peak, retail buyers have flocked to dogecoin and ether, echoing what transpired in 2017.

Read more: A 29-year-old crypto billionaire who’s made millions from digital-currency arbitrage shares 2 tips for investors looking to get started in trading- and explains why ether is unlikely to surpass bitcoin

Bitcoin’s jump this year has been supported as more big firms have stepped up their activity into the crypto market. Electric vehicle maker Tesla in February said it invested $1.5 billion in bitcoin and CEO Elon Musk said it would start accepting bitcoin as payment for its cars. Meanwhile, Goldman Sachs has formed a new cryptocurrency trading desk and PayPal started allowing US consumers to use their cryptocurrency holdings to pay at millions of its online merchants.

But Bitcoin has dropped 13% since its all-time high less than one month ago, trading below $57,000 on Monday. Dogecoin has tumbled 34% since last week’s high, slumping below $0.50 on Monday after dogecoin enthusiast Musk talked about the meme token during his gig hosting “Saturday Night Live” over the weekend.

“Despite Elon Musks’ attempt to boost Dogecoin this weekend … it has failed to climb back to year-to-date highs. If and when Ethereum suffers the same fate, the cryptocurrencies will likely face a wave of redemptions,” said Onatibia. He noted that Musk’s SpaceX satellite company has said it will accept the meme cryptocurrency as payment for the company’s mission to the moon in 2022.

“Indeed, open interest data from different crypto exchanges shows that there has been a rotation from Bitcoin to Ethereum since the Coinbase IPO. We think a correction in crypto would push retail investors back into equities, where some of their favorite stocks are now trading at a significant discount vis a vis the February highs,” said Vanda Research.

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US stocks slump as global COVID-19 cases increase

worried trader
  • The S&P 500 and the Dow on Tuesday continued their slide from last week’s record highs.
  • Global COVID-19 cases are rising, and the US State Department is set to issue a travel advisory.
  • The VIX, Wall Street’s “fear gauge,” was advancing.
  • See more stories on Insider’s business page.

Stocks moved lower on Tuesday, edging further from their strongest levels on record over concerns about rising COVID-19 cases worldwide.

The S&P 500 and the Dow Jones industrial average were in the red for the second straight session after notching record closing highs at the end of last week.

But on the rise was the VIX, Wall Street’s so-called fear gauge. It climbed by the most in three weeks, indicating that investors expect increased volatility over the next 30 days. A recent survey by Allianz found that many Americans want to stay on the sidelines of the stock market this year, worried that volatility will accelerate and hurt their investments.

Here’s where US indexes stood at 9:30 a.m. ET on Tuesday:

The S&P 500’s consumer-discretionary sector was losing the most ground, with airline stocks down after the US State Department said on Monday that it planned to issue a “Level 4: Do Not Travel” advisory for nearly 80% of countries as the coronavirus continues to spread. Shares of United Airlines were lower after the carrier indicated that quarterly losses would continue until air travel recovers to 65% of 2019 levels.

Officials in Japan are weighing a virus state of emergency, and the UK imposed a travel ban for visitors from India because of high case counts there. Argentina is battling another wave of cases.

Elsewhere, Apple will be in focus as it hosts a “Spring Loaded” virtual event at 1 p.m. ET during which it is expected to introduce two iPad Pro models.

Around the markets, a GameStop stake held by Alaska’s revenue department soared by more than 700% last quarter. Alaska also said its Tesla bet had grown to $85 million in 18 months.

Bitfarms, a Canadian bitcoin-mining company, is planning a new mining site in Argentina that it said would be its largest yet.

Gold fell 0.1%, to $1,767 per ounce. Long-dated US Treasury yields rose, with the 10-year yield at 1.61%.

Oil prices rose. West Texas Intermediate crude gained 0.4%, to $63.60 per barrel. Brent crude, oil’s international benchmark, gained 0.8%, to $67.57 per barrel.

Bitcoin rose to $56,079.

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GameStop’s stock price likely to see limited impact from $1,400 stimulus checks, says Bank of America

GameStop
  • The $1,400 stimulus checks being sent to Americans may have a limited impact on GameStop shares, says Bank of America.
  • BofA has been analyzing non-fundamental factors on the shares including trading volume and short interest
  • GameStop is set to release fourth-quarter earnings on March 23.
  • See more stories on Insider’s business page.

GameStop shares are likely to get just a limited bump up in volume activity and price from the $1,400 stimulus checks that most Americans are receiving to help them financially cope with the coronavirus crisis, according to Bank of America.

This year’s rush by retail investors into the videogame seller’s shares has resulted in the stock price climbing at high as $348 from nearly $19 at the end of 2020. Much of the fervor around the often-volatile stock has come from retail investors on the Reddit social-media platform, who ramped up a battle against institutional short-sellers in late January.

Over the past two months, Bank of America has analyzed the impact on GameStop shares from non-fundamental factors including the number of conversations on Reddit relating to the stock, trading volumes, and short interest. The factors “have shown a tight relationship and large increases have corresponded to several big surges in GME’s share price,” the firm said.

Then the bank began taking into consideration the $1,400 checks the government starting sending out this month. It analyzed the number of conservations mentioning stimulus, as well as “stimmies” and stimmy”, on online forums then plotted the data against GameStop’s share performance.

In late December and ahead of the round of $600 stimulus payments sent under the Trump administration, “there was indeed a spike in stimulus mentions and this was followed by an even larger increase over the past two weeks,” from March 2 through March 17.

“These spikes also coincided with significant increases in GME’s share price,” wrote the bank in a note led by Curtis Nagle, director of equity research at Bank of America.

But “the impact going forward may be limited given two factors,” the bank said. First, conservations involving stimulus “appear to have peaked” and GameStop shares have declined over the past few days. Secondly, the number of recent conversations including both GameStop and stimulus “is low. GME trading volumes are also steadily declining and short interest is down materially.”

The next event on the radar for GameStop investors is the release of the company’s fourth-quarter earnings after the bell on March 23. “We expect an underwhelming quarter given previously announced holiday sales results that were very disappointing,” said BofA.

It noted that GameStop shares over the past five months “have reacted very positively to a string of announcements” including a digital revenue-sharing arrangement with Microsoft and the appointment of Ryan Cohen to be in charge of a new committee aimed at driving a turnaround plan. Cohen is the cofounder of pet products retailer Chewy and GameStop’s largest individual shareholder.

Bank of America maintained its underperform rating on GameStop shares “on significant earnings risk ahead.”

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Morgan Stanley says the ‘extraordinary outperformance’ of small caps is coming to an end and the sector will feel cost pressure as the economy reopens

FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York U.S., July 16, 2018. REUTERS/Lucas Jackson/File Photo
FILE PHOTO: A sign is displayed on the Morgan Stanley building in New York

Small caps and cyclical stocks have outperformed during the recession, but their extraordinary run will end soon, Mike Wilson, chief US equity strategist, said on Morgan Stanley’s “Thoughts on the Market” podcast late on Monday.

Since last April, the Russell 2000 index of small-cap stocks has outperformed the S&P 500 and Nasdaq 100 by 50% and 40%, respectively, Wilson said.

Small caps are those stocks that have a total market capitalization of between $250 million and $2 billion. They are likely to be disproportionately impacted by growing cost pressures during economic recovery. These come from concerns about labor availability and supply-chain shortages and are highlighted in recent purchasing manager surveys.

The Russell 2000 is up by around 19% year to date and has gained over 110% in the last 12 months. The S&P 500 and the Nasdaq 100 have risen by 5.7% and 4.4%, respectively so far this year.

The index has been one of the best-performing worldwide in the last year. It has even outperformed the tech-heavy Nasdaq 100, which has gained 75%, thanks to triple-digit percentage gains in the likes of electric vehicle maker Tesla, or video call app Zoom.

Morgan Stanley has therefore downgraded small caps to reduce risk. “Now, we think that period of extraordinary outperformance and earnings revisions and valuation expansion may be coming to an end,” Wilson said.

The bank upgraded the sector last April based on the assumption that “we would experience a V-shape recovery in the economy, and the government subsidy of the unemployment cycle would accrue to the bottom line of corporations, especially small caps”.

Because small caps tend to be very closely linked to the real underlying economy, they gained far more than bigger-caps, which can often be more subject to the health of global trade, exchange rates and other external factors. With the bounceback from the depths of coronavirus-induced recession, small caps enjoyed an even bigger rally and that may be starting to level out, Wilson said.

“The equity market is doing exactly what it should be at this stage of the recovery” Wilson said. Market-based interest rates have shot up significantly since the start of the year, as investors price in the prospect of a rapid pickup in growth, which might mean some correction in equity valuations in 2021.

“This doesn’t mean smaller cap company stocks can’t work; however, the risk-reward at this point is no longer favorable,” Wilson said.

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Retail investors could buy a record $3 billion of US stocks the day they get their stimulus money, one research firm says

Traders work on the floor of the New York Stock exchange
  • Retail investors could snap up a record $3 billion in stocks the day they start receiving their COVID-19 relief funds, says Vanda Research.
  • That could happen as soon as Wednesday or Thursday, when most Americans will start seeing $1,400 deposited into their bank accounts,.
  • Owning small-cap stocks could be a good way to position for this week’s event, says Vanda Research.
  • See more stories on Insider’s business page.

Retail investors could buy a record $3 billion of US equities in a single day when they receive their $1,400 stimulus checks from the US government, according to Viraj Patel, global macro strategist at Vanda Research

The firm says this could happen as soon as Wednesday or Thursday of this week. JPMorgan Chase and Wells Fargo have previously said their customers are slated to start getting the $1,400 checks on Wednesday.

Numerous Americans have already said on social media sites they’ve already received the cash approved by Congress and signed off on last week by President Joe Biden. The aim is to help reinvigorate the world’s largest economy after it was thrown into recession last year because of the coronavirus crisis.

A new round of cash coming into equities would take place at a time that the S&P 500 Index and the Dow Jones industrial average have hit all-time highs, spurred in part by investors rotating into cyclical stocks that should benefit from the recovery in the US economy. Many businesses have been reopening their doors as millions of Americans have received vaccinations to ward off COVID-19 infections.

“But besides just guessing past retail favourites (GME, TSLA, AMC, BB, NIO etc.) in the hope that retail traders will plow their stimulus checks into those stocks once again — we’d think owning small-cap indices (namely the Russell 2000) could be a good way to position for this week’s event,” Patel told Insider via email on Monday.

Vanda Research’s data analysis arm VandaTracks tracks retail investing activity in 9,000 individual stocks and ETFs in the US.

GameStop, AMC Entertainment and BlackBerry have become popular among retail investors who are active on Reddit’s WallStreetBets platform and who drove the January rally in those and other so-called meme stocks.

The small-cap Russell 2000 Index has gained about 19% during 2021, with movie theater operator AMC among its best performers. The company this week will begin showing films again in California, starting in the major market of Los Angeles.

Big buying of US equities on Wednesday would be on the same day the Federal Reserve will release its monetary policy statement. The Fed isn’t expected to make any changes on interest rates but investors will listen for indications from Fed Chairman Jerome Powell about when the central bank will begin to raise interest rates in the face of improvement in the economy.

Read more: Morgan Stanley says to buy these 12 stocks before their unique catalysts drive them to deliver market-beating returns

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