Another bout of selling gripped the U.S. stock market Friday, as anxiety mounts over whether the frenzy behind a swift, meteoric rise in Grapevine-based GameStop and a handful of other stocks will damage Wall Street overall.
The S&P 500 dropped 1.9%, giving the benchmark index its biggest weekly loss since October. The Dow Jones Industrial Average and Nasdaq each fell 2%.
GameStop shot up nearly 70%, clawing back much of its steep loss from the day before, after Robinhood said it will allow customers to start buying some of the stock again. GameStop has been on a stupefying 1,600% run over the last three weeks and has become the battleground where swarms of smaller investors see themselves making an epic stand against the 1%.
The assault is directed squarely at hedge funds and other Wall Street titans that had bet the struggling video game retailer's stock would fall. Those firms are taking sharp losses, and other investors say that's pushing them to sell other stocks they own to raise cash. That, in turn, helps pull down parts of the market completely unrelated to the revolt underway by the cadre of smaller and novice investors.
Texas Attorney General Ken Paxton on Friday sent civil investigative demands to Robinhood, TD Ameritrade, E-Trade and other companies where smaller investors often operate.
"Wall Street corporations cannot limit public access to the free market, nor should they censor discussion surrounding it, particularly for their own benefit. This apparent coordination between hedge funds, trading platforms, and web servers to shut down threats to their market dominance is shockingly unprecedented and wrong. It stinks of corruption," said Attorney General Paxton. "I'm hopeful that these companies will step up and cooperate with these CIDs in order to clear any confusion over why stock purchases were forcibly closed and why even conversation around these stocks was silenced."
The maniacal moves for GameStop and a few other formerly beaten-down stocks has drowned out many of the other issues weighing on markets, including the virus, vaccine rollouts and potential aid for the economy.
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"Our consideration is whether this is something that is a long-term influence or contained within a handful of companies," said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.
Meanwhile, calls for regulators to step in are growing louder on Capitol Hill, and the Securities and Exchange Commission says it's carefully monitoring the situation.
"You've seen a lot of volatility this week, so when you have some unknowns like what you're seeing in the retail trading world, people are a little concerned at record highs here and taking some money off the table," said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
The S&P 500 fell 73.14 points to 3,714.24. It ended the week with a 3.2% loss, its worst week in three month. It ended January with a 1.1% loss, its first monthly decline since October. The S&P 500 is still up 13.6% since the end of October.
In addition to public statements and internal documents, Paxton's office also requested terms of service policies, communications between platforms and moderators and policies on content control.