The market's blue chips largely bounced back, with gusto, on Thursday, but a number of smaller stocks recently thrust into the spotlight by massive short squeezes took a different turn.
The latest twist in the ongoing saga of GameStop (GME, -44.3%) and other stocks pumped higher by a Reddit community: Robinhood and other stock-trading platforms moved to restrict trading on these shares, prompting them to sharply sell off. This sparked backlash not just in the investing community, but even on both sides of the aisle in Washington – Democratic Rep. Alexandria Ocasio-Cortez and Republican Sen. Ted Cruz were among those demanding a fix to, and answers for, the sudden shutdown on retail traders.
GameStop wasn't the only one of these stocks to suffer. AMC Entertainment (AMC, -56.6%), Nokia (NOK, -28.4%), Bed Bath & Beyond (BBBY, -36.4%) and BlackBerry (BB, -41.6%) were among other recent momentum stocks that crashed amid these restrictions.
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"Manias like this usually end in tears," says Dan Kern, Chief Investment Officer of TFC Financial in Boston, a $1.2B AUM investment management and financial planning firm. "I'm reminded of some of the things I saw in 1999 – people (including business school classmates) telling me they were making more money day trading than from their jobs. By 2001, very few of them were still day-trading."
The broader indices, however, were back to business as usual – climbing higher on news of lower weekly unemployment filings, as well as record revenues from Microsoft (MSFT, +2.6%) with surging cloud and gaming sales.
Not all blue chips were so lucky. Tesla (TSLA, -3.3%) fell on an earnings miss, Facebook (FB, -2.6%) beat expectations but warned of uncertainty, in part due to privacy changes from Apple (AAPL, -3.5%), which also declined despite a profit beat.
Nonetheless, the Dow Jones Industrial Average gained 1.0% to 30,603; the S&P 500 was up similarly to 3,787.
Other action in the stock market today:
- The Nasdaq Composite gained 0.5% to 13,337.
- The Russell 2000 slipped 0.1% to 2,106.
- Gold futures continued their streak of declines, falling 0.4% to 1,837.90 per ounce.
- U.S. crude oil futures slid 0.5% to $52.57 per barrel.
- Bitcoin prices, at $31,629 on Wednesday, enjoyed a 3.1% bounce-back to $32,608. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
Disaster Averted?
That "whoosh" you just heard was likely the collective sigh of relief from investors fearing a broader market-bubble burst after yesterday's 634-point drop in the Dow.
That said, while plenty of experts are anticipating some sort of dip or even a correction as the market digests the rally of the past few months, few are fearing a bigger pop.
"Some of my more bearish colleagues in the industry see what's happening with GameStop and AMC as signs that an investment apocalypse is coming and that we're headed to another dot-com bust," Kern says. "I disagree but understand the concern."
"Current valuations, while high, are not necessarily unsustainable and not driven solely by investor sentiment," says Brad McMillan, chief investment officer for Commonwealth Financial Network. Still, he warns, "Does this mean we won't see a market decline? Of course not. Even in the absence of a bubble, markets can drop significantly, as we have seen multiple times in the past decade. Bubble or not, we can certainly expect more volatility, because whatever happens with interest rates or sentiment, that is one thing that will not change about markets."
There are various ways to keep sailing smoothly through rough waters, of course, not least of which is a steady drumbeat of dividend payments. Dependable income stocks such as these 25 names, or rarer monthly dividend payers, are a couple of ways to fill that need.
But you could also consider the high-yield diversification of closed-end funds. You can learn more about CEFs here, but, in short, their unique construction provides them with certain advantages compared to their larger mutual-fund and ETF brethren. Read on as we examine 10 of the best such CEFs for the year ahead.
Kyle Woodley was long MSFT, NOK and Bitcoin as of this writing.
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