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- The US stock market has experienced its biggest drop in sales in 25 years, over a three-month period, according to Goldman Sachs.
- The culmination of that came last week, when hedge funds withdrew from the market at the fastest rate since 2009, the company said.
- Day traders have increased GameStop shares and other stocks that have been heavily sold in recent weeks, costing short sellers billions.
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The US stock market has experienced its biggest short compression in 25 years in the past three months, according to Goldman Sachs.
It all came to light last week amid the GameStop madness that forced hedge funds to divest their shares at the fastest rate since 2009, the company found.
GameStop’s shares soared 400% last week – and 1,625% throughout January – squeezing the hedge funds and others that had bet against the shares, costing them billions of dollars. A short position is a gamble on falling stock prices. Estimates from data provider Ortex on Friday showed that short sellers were sitting on losses of around $ 19 billion on GameStop alone in 2021 so far.
The increase in GameStop and other heavily sold shares was driven by users of the Reddit Wall Street Bets forum, who forced the price increase in an effort to make money, but also to hammer hedge funds like Melvin Capital. They had to buy shares in companies like GameStop and the AMC theater chain to close their short positions and sell other shares to cover their losses.
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The activity was the culmination of a three-month period in which the basket of the best-selling US stocks rose 98%, far exceeding the equally aggressive pressures seen in 2000 and 2009.
“The funds in its coverage sold long positions and covered short positions in all sectors,” said David Kostin, Goldman’s chief stock strategist in the United States.
Kostin and his colleagues said regulations, limits imposed by trading venues or sharp losses could stop the frenzy of amateur trading.
“Otherwise, an abundance of US domestic money should continue to fuel the trade boom,” they said.
Goldman said retail investment is booming due to the large amount of savings accumulated during the coronavirus period, as well as government stimulus.
“During 2020, credit card debt fell by more than 10%, demand deposits grew by $ 4 trillion and savings grew by $ 5 trillion,” said investment bank analysts.
“In addition to these savings, our economists expect more than $ 1 trillion in additional fiscal support in the coming months, including another round of direct checks.”
Read More: Jefferies says that these 20 heavily shorted and lightly traded stocks can make big jumps in the event of a GameStop squeeze