US stimulus may fuel another GameStop saga; penny stocks, crypto in focus

Earlier in January, Reddit investors had flooded Wall Street, buying shares of GameStop and forcing marquee investors into a squeeze.
(Image: REUTERS)

Wall Street could be in for a repeat of the Gamestop-like playbook in the coming weeks, with young investors pouring their fresh US stimulus cheques again into heavily shorted stocks. The theme that investors could focus on remains similar to what fuelled the previous rally in the meme stocks. “We can expect more crowd-powered runs at stocks that are heavily shorted,” Eric Shiffer, CEO of private equity firm The Patriarch, told Financial Express Online. “Study the heavily shorted funds and keep an eye on AMC and GameStop because they still will capture attention and the potential for short-term investor riches and danger,” Eric Shiffer added.

Bring it on: Young investors willing to take on more risk

A Deutsche Bank survey of 430 investors recently said that those between 25 and 34 years of age plan to spend 50% of their stimulus payments on stocks. “Investors under 30 shoulder plenty of financial strain, but it has made them more willing to take on risk, not less,” said Richard Smith, CEO of The Foundation for the Study of Cycles, a research firm. Investors could also test freshwaters by investing in NFTs along with meme stocks, cryptocurrencies and penny stocks, according to Richard Smith.

Rise of smallcaps

Since the end of February, as the US Congress came closer to passing the stimulus plan, GameStop shares have soared 348%, AMC Entertainment has gained 54%, and Koss Corp has zoomed 114% during the same period. On Wall Street, smallcap stocks are taking the limelight so far this month. The Russell 3000 index is up 5% so far in March and the Russell has surged nearly 6%. Rising treasury yields, despite the Fed’s optimistic comments, has been a worrying sight for large-caps.

So far, the US Treasury has issued 90 million stimulus payments worth a collective $242 billion as a part of the $1.9 trillion rescue package. According to reports, the treasury department has also sent 150,000 physical cheques. “Don’t be surprised when a lot of this (stimulus) money ends up going into stocks, or even flashier investments like NFTs,” said Richard Smith.

Earlier in January, Reddit investors had flooded Wall Street, buying shares of GameStop and forcing marquee investors into a squeeze. Hedge Fund Melvin Capital is reported to have lost nearly $4.5 billion in asset value covering its position after having gone short on GameStop when retail investors were buying the stock.

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