[Good Morning Stock Market] US 'GameStop' Plummets, Stimulus Hopes Rise... "Positive for Domestic Market"

[Asia Economy Reporter Minji Lee] On the 28th (local time), the U.S. stock market showed a strong rebound as expectations for economic normalization grew due to the passage of additional stimulus measures and the expansion of vaccine distribution. The recent influx of rebound buying was also influenced by the market experiencing its largest decline in three months.

Stocks that experienced short squeezes due to clashes between individual investors and hedge funds, such as GameStop, saw sharp declines. GameStop fell 44%, while AMC (-56%) and Bed Bath & Beyond (-36%) also dropped. The U.S. Securities and Exchange Commission (SEC) announced that it is "actively monitoring the situation" and has taken steps to cool down the overheated market, which affected these movements. However, since conflicts like those involving GameStop could reoccur due to market overheating, caution is advised regarding increased market volatility.

[Image source=Yonhap News]

◆ Sangyoung Seo, Kiwoom Securities Researcher = The U.S. stock market saw an influx of rebound buying as the Dow Jones and S&P 500 indices turned negative year-over-year following recent declines. Speculative trading-related stocks fell, while large tech stocks as well as financials, leisure, and industrials led the market.

House Speaker Nancy Pelosi announced that next week the House will pass a $1.9 trillion stimulus package regardless of Republican support, which positively influenced the market. After passing the House, it is expected that Senator Bernie Sanders will invoke reconciliation in the Senate Budget Committee, making Senate approval possible, with the goal of completing it by the weekend. Although opposition is anticipated, President Biden has stated he will negotiate with bipartisan lawmakers, raising hopes for a positive outcome.

Additionally, the U.S. Centers for Disease Control and Prevention (CDC) announced that over 20 million COVID-19 vaccine doses have been administered and appear safe, similar to clinical trials, which was also positive. Expectations were further raised by the upcoming release of Johnson & Johnson’s vaccine clinical data next week. Since it requires only a single shot and can be stored refrigerated, vaccination speed could increase, potentially impacting economic normalization.

Recently, the domestic stock market has shown weakness due to increased volatility in the U.S. market and continuous liquidity absorption by the People’s Bank of China. Large-scale net selling by foreigners, including hedge funds rapidly reducing their stock holdings, is burdening the Chinese and emerging markets overall. However, with the U.S. market showing strength due to expectations of additional stimulus and vaccines, the domestic market is also expected to be positively influenced.

◆ Sunggeun Kim, Korea Investment & Securities Researcher = The hottest issue in the market recently was not the Federal Open Market Committee (FOMC) or Apple’s earnings announcement, but the company GameStop. Its stock price surged 135% in one day, with a total return approaching 435%. This phenomenon stemmed from the conflict between individual investors and hedge funds over short selling. Hedge funds anticipated a decline in GameStop’s stock price and engaged in short selling, but as the price rose, they bought shares earlier than expected to cover large losses (short squeeze).

This issue can certainly be problematic from a market perspective. While it is not a factor that disrupts the overall trend, it can create noise that temporarily increases volatility. Hedge funds facing a short squeeze must sell other assets to close their short positions, which can increase market volatility during the process. When caution about bubbles intensifies, the impact can be greater than expected. Until the short selling storm in the U.S. fully subsides, the market may remain somewhat unsettled.

This content was produced with the assistance of AI translation services.