Barron's : The GameStop Revolt Has Just Begun. Get Ready.

The GameStop Revolt Has Just Begun. Get Ready.

For 10 months, GameStop was a depressing emblem of the Covid-era economy—many of its stores sat closed or empty, dust gathering on out-of-date game discs that had been supplanted by digital alternatives. It has closed about 1,000 outlets since the start of 2019.

Then, for the past three weeks, it became the center of a much larger world, the $36 trillion U.S. stock market. The stock rose more than 1,600%, caused a short squeeze that throttled hedge funds, and became such a topic of fascination that the White House and the Federal Reserve were forced to weigh in.

The people fueling its insane rise made fun of themselves and readily acknowledged that they were involved in a “stupid” experiment to see if several thousand nobodies could take on Wall Street and win.

They won. The strategy wasn’t profound: “I’M HOLDING THIS ONE OUT EVEN IF IT COSTS ME EVERYTHING,” Reddit user atomsej wrote on its popular WallStreetBets forum.

Investors can ignore atomsej—even if the all-caps writing makes that hard—and stay out of GameStop (ticker: GME). But the trends involved aren’t going anywhere and are already having a ripple effect. Understanding the changes will be critical to playing the market, even for those who aren’t involved in the online wars over stocks.

It is remarkable that such a big story starts with such a seemingly insignificant stock. From 2017 to last summer, GameStop shares fell to $4 from $25, yet there were glimmers of hope along the way. Michael Burry, famous for calling the mortgage bubble before the financial crisis, and Chewy co-founder Ryan Cohen disclosed stakes in 2019 and 2020, respectively. Despite skepticism from sell-side analysts, retail investors on forums like Reddit took notice, pointing to Cohen’s success beating Amazon.com in the pet-food business. GameStop announced that it would add Cohen and two other former Chewy executives to its board of directors earlier this month. It also announced holiday sales that largely disappointed analysts. That’s when things got weird, and the stock began to surge.

Users on WallStreetBets coalesced around the stock, countering the huge short interest that had massed against GameStop. The retail investors—some of them taking advantage of government stimulus checks—supercharged the trade with wildly bullish options bets. What started as silliness tapped into a populist movement that downloaded the spirit of Occupy Wall Street directly into millions of smartphones and, from there, into the plumbing of the world’s financial markets.

The new power of retail investors is a “change that is not going to go away,” said New York University professor Aswath Damodaran. “And that’s shaking up traditional portfolio managers, because they’ve lost control of the process.”

Here are the factors that drove the rally and that could affect the market well into the future:

RETAIL RENAISSANCE
In the past year, more new investors have opened accounts at brokers than ever before. U.S. brokers added at least 10 million new retail trading accounts, and a shift to zero trading commissions late in 2019 unlocked a wave of activity that dwarfed even the wild days of the dot-com bubble. Early into the coronavirus lockdowns, when people had little else to do and no major sports to bet on, trading activity started to surge and has not subsided, even as the economy has gradually opened up. Average daily trading at the biggest retail brokers hit a record of 6.6 million a day in December. This month, it soared again, to 8.1 million, according to Piper Sandler analyst Richard Repetto. On Wednesday, equity volume was triple the average day in 2019.

Retail investing has always been a small fish amid the hedge funds and other large institutions that tend to dominate trading. But that’s changing. Before the pandemic, retail trading made up 14% to 15% of equity volume; now, it’s consistently making up more than 20%, Repetto estimates. When that energy is concentrated on just a few stocks, it can make a difference—and in the case of GameStop and several-other bottom-dwelling names, it caused a startling shift.

MORE OPTIONS
Daily options trading has more than doubled since 2019, led by retail investors who can get it free on platforms like Robinhood. As of this month, small buyers account for about twice as much of the options volume as the big and midsize players, according to Deutsche Bank.

In some ways, options live in their own world—like a leveraged side bet on a stock. But they can also have an enormous impact on the underlying stock itself. Market makers who execute options trades have to hedge by buying the stock itself, often in large volumes. That action can cause the stock to rise even more.

The quick score of a bullish options play can be appealing to quarantined day traders, fulfilling both an emotional rush and a financial need—even though most options expire out of the money, making them worthless.


“We are stuck at home, and we are isolated and we are all scared, and a lot of us are hurting for money or struggling, losing employment,” said Austin Wynn, who runs a trading group that gathers on Facebook and the social-media site Discord and plays stocks like GameStop. “And I think it fulfills the high—as much as it may also fill the financial piece for a while.”

GETTING SOCIAL
Making a big bet is easier when all your friends are doing it, too. WallStreetBets began the year with about 1.7 million members and has since surged to more than six million members.

Groups of traders have targeted single stocks before, but never with the velocity and enthusiasm that they embraced GameStop.

“It’s very much a community thing,” said Brandon Luczek, a 28-year-old electronics technician for the U.S. Navy who lives in Virginia. “We were all making money together. People paid off their student loans, people paid off their houses.”


“It definitely felt like I was a part of something big,” Luczek said. He made tens of thousands of dollars on GameStop trades, including as much as $46,000 in a single day by using options.

Along with sharing screenshots of successful trades, the forums are infused with pop culture, profanity, and over-the-top doctored photos.

SHORT ATTACK
It hasn’t all been fun and memes, though. While this new group of traders has adopted a celebratory tone, they also have an us-versus-them mentality. The “them” in this case is whoever might qualify as a Wall Street insider. The gang’s antipathy focused on one group in particular: short sellers targeting stocks they like.

Shorts borrow shares of stocks they expect to fall, with the expectation that they’ll be able to buy them back at a lower price and return them to the lender at a later date. But when stocks start to rise, short sellers are under extreme pressure to buy, because they need to cover their positions and they don’t want to have to buy at even-higher prices. As short sellers panic, the buying pressure grows and the stock soars.

After Citron Research’s Andrew Left argued recently that GameStop would fall to $20 fast, he was widely mocked on the Reddit forum. People signed him up for Tinder and tried to guess his password on Twitter. Left said his family was also harassed. He withdrew from his short position and said he would no longer comment on the stock. “I had no idea what I’d set off,” he said in a video that felt not very different from a hostage scene. On Friday, Citron said it would no longer publish short-selling research after 20 years of doing so. “We will focus on giving long side multibagger opportunities for individual investors,” the firm said.

RIPPLE EFFECT
“I believe there is a systematic targeting of highly shorted stocks,” said Steve Sosnick, the chief strategist at Interactive Brokers, early in the week. He was quickly proved right.

AMC Entertainment Holdings (AMC), a movie-theater chain clinging to its life amid Covid-19 shutdowns and the rise of streaming, has seen its shares soar 278% amid interest from the retail crowd. Other out-of-favor stocks like BlackBerry (BB) and Bed Bath & Beyond (BBBY) surged amid last week’s frenzy.


The most-shorted stocks in the Russell 2000 have risen more than 80% since October, while the least-shorted ones are up less than 20%, according to Société Générale.

As heavily shorted stocks rose, hedge funds that bet against them flinched. The most notable of these was Melvin Capital, a hedge fund run by former SAC Capital portfolio manager Gabe Plotkin. As GameStop spiked, Melvin received $2.75 billion in emergency financing from Citadel and Point72. Melvin said that it had closed out of the GameStop position on Tuesday—a sign of victory for the Redditors. Wall Street’s biggest guns, like hedge fund and market maker Citadel, were in the middle of it, too, in part because of the firm’s market-making business with broker Robinhood and its investment in Melvin Capital.

The action in out-of-favor stocks spooked some hedge funds with sizable short bets. To close out those shorts amid soaring prices, some were forced to raise money by selling shares of well-liked stocks, notes Raymond James strategist Tavis McCourt. A basket of stocks popular among hedge funds saw significant drops during the week. Strategists said the action had quickly bled into even more sectors: The S&P 500 fell 3.3% this past week, its biggest drop since before the November presidential election.

“The next few weeks could be a wild ride,” wrote Oanda analyst Craig Erlam, and, given the market’s frothy valuations, it’s happening at “the worst possible time.”

LESSONS LEARNED
The sense from some on Wall Street was that all of this was wrong—if it didn’t rise to criminality, it at least overturned the order of things. But frankly, it’s not clear there is anything wrong with it. NYU’s Damodaran said he expected there to be continued cries of “ ‘we should regulate this, we should stop it.’ The reality is, I don’t think you can do it.”

The fact that a large number of investors had the same opinion about a stock and drove it to ridiculous levels isn’t illegal. If someone infused those discussions with misinformation, that might be different, and qualify as market manipulation, which is illegal. But finding manipulation in a boisterous online forum is a “needle in a haystack” problem, said Columbia Law School professor John Coffee.


“It is possible there are organized groups within WallStreetBets taking profits,” wrote Philip Moustakis, a lawyer at Seward & Kissel and a former Securities and Exchange Commission attorney, in an email. “It’s also possible this trading truly is as decentralized as it appears. And to the extent there is profit-taking, there is little indication that it is based on false information disseminated to the press, on Reddit, or elsewhere. This feels more like a collective mania: In the joy of gambling, in the joy of ‘owning’ the hedge funds who shorted the stocks.”

The SEC has said it is “monitoring” the situation, and members of Congress said there would be hearings. Those hearings could end up covering much more than why a stock rose. Rep. Alexandria Ocasio-Cortez (D., N.Y.), for instance, criticized Robinhood for blocking access to certain highflying stocks on Thursday. The company said it was forced to act quickly to blunt the impact of market activity, in part because of SEC capital requirements. Other brokers also changed their requirements for investing in the big movers.

“The commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” the SEC commissioners said in another statement on Friday.

William Galvin, the secretary of the Commonwealth of Massachusetts, said the New York Stock Exchange should halt trading in GameStop stock for 30 days so it can “cool down”—a suggestion that the NYSE didn’t comment on and didn’t appear to be contemplating.

Through the week, a political consensus seemed to be growing that the bad guys in this instance are the old Wall Street players, trying to blame the up-and-comers for making the market rattle. “Fully agree,” wrote Sen. Ted Cruz (R., Texas) on Twitter in response to Ocasio-Cortez, normally his fiercest opponent.


Other entities could face scrutiny, too. There was some evidence that it wasn’t just the little guys participating in the rally. “There’s absolutely institutional money at play here,” David Trainer, CEO of research firm New Constructs and a former analyst at Credit Suisse, told Barron’s. “If you look at the tape, there were 10,000-share blocks being traded,” he said.

If big players simply rode the wave, that would be OK. But if there’s evidence that they were involved in touting the stock, it could invite more scrutiny, Coffee said.

GameStop itself, which has stayed quiet during the run-up, may also face questions, former regulators said. It had announced in December it might sell stock at an “at-the-money” offering, and it could have taken advantage of the run-up to raise money. GameStop didn’t respond to requests for comment from Barron’s on whether it was doing so. Multiple board members declined to comment. AMC and Naked Brands Group (NAKD), whose stock also soared, raised cash during the frenzy.

WHAT’S NEXT
The fastest and biggest impact appears to be on short sellers. Losing an estimated $5 billion can change behavior, of course. Citron’s practice of announcing its short calls to much fanfare is over, and it’s unlikely that other funds will engage in it, either. In general, shorts will have to be both quieter and more careful.

“The thing is not to be short stocks with 150% short interest,” said Jason Mudrick, founder of hedge fund Mudrick Capital Management. “As a risk manager, you have to look at all of these things.”

Regulators will now probably try to impose new guardrails around retail trading. The SEC said last year that it was looking closer at options trading and how brokers disclose risks. Trading on margin could be curtailed, and the rules for getting into options may change.

Brokers will undoubtedly need to make changes, too. Their apps and websites have already been under pressure from a surge of retail trading. And several had to curb trading last week in some stocks for regulatory and financial reasons, angering customers. Ultimately, the brokers facilitated a frenzy they couldn’t keep up with. Now, they will have to adapt or watch their clients disappear. Robinhood, in particular, has much to prove, as the company is expected to go public this year.

Hedge funds—even those that don’t regularly go short—will also have to adjust. Much as they use alternative data to track credit card receipts and get ahead of earnings reports, they’ll now have to watch the message boards. Already, alt-data firms are ramping up their offerings, with web-crawling company Thinknum telling Barron’s that it just launched a product on Thursday specifically to track Reddit. “This new product tracks the number of times NYSE and Nasdaq tickers are mentioned in the top 100 posts on r/WallStreetBets and r/Stocks in real time,” the company said, referring to the popular Reddit forums. Already more than 50 hedge funds have asked about it.

The great innovation of 2021 is a robot that sifts through emojis for investment signals.

No, the retail revolution is clearly not going away, even if some market participants may hope it does. Those in on the fun should expect new margin limits with their brokers and possibly more stringent requirements for complex trading strategies. For everyone else, the message is more complicated. Buy-and-hold investors need to be aware of the trends, but they should stay away from the stocks.

Know this, too: The “crowd-squeeze,” as Damodaran calls the GameStop move, has already shown the potential to be a systemic risk to broader markets, particularly when pricey markets are looking for an excuse to correct.

Old-school investors are wary. Legendary bond investor Bill Gross called on Friday for government action to protect against the fallout of volatile trading. He also thinks that investors need to develop new models that rely “not just on the fundamentals of quarterly earnings reports” but also that “alert investors to improbable if not outlandish expectations.”

Reddit user benaffleks had a different take: “This is a big moment. A tug-of-war between tradition and the future. Hedge fund managers live in the past, and continue to look down upon the retail investors. They truly believe that we, the average retail investors, don’t know anything about finances or the market (which may be true), and we’re just gambling our money away.”

“This is the world they want to live in,” benaffleks added. “This was the past.”

WSJ : Day-Trader Mania Will Challenge SEC Under Gensler, Biden’s Choice for Chai

Day-Trader Mania Will Challenge SEC Under Gensler, Biden’s Choice for Chairman
Marriage of social media and online-trading platforms brings more investors in to the market but amplifies risks

WASHINGTON—The trading mania around shares of companies like GameStop Corp. GME 67.87% this week poses a dilemma for Gary Gensler, the Biden administration’s choice to head the Securities and Exchange Commission: While broadening investor participation, the stampede also poses new risks that could spread to other participants.

The SEC generally encourages greater involvement of retail investors. But as more individuals become short-term speculators trading on momentum signals and not much else, the agency could come in for blame when bubbles burst and investors are saddled with losses. There are also implications for the brokerage business, which feeds off the higher demand and can be hobbled by the volatility it creates.

The SEC said Friday that it would examine whether any traders manipulated prices by exhorting others on social-media websites to buy the trendy stocks. The upheaval occurs at a time when Congress has questioned the regulator’s supervision of the retail investing landscape.

“There are problems emerging that are going to have to be dealt with, and my guess is Gary Gensler will want recommendations on his desk when he walks in on the first day,” said Mark Berman, a regulatory consultant and former SEC official.

Since stepping down from his role leading the Commodity Futures Trading Commission in early 2014, Mr. Gensler has been teaching finance at the Massachusetts Institute of Technology and writing about financial-technology innovation, including the rise of cryptocurrencies such as bitcoin.

A different trend appears to be at work this week: the combination of social media and financial technology that makes it easier and cheaper to trade. SEC officials who briefed House lawmakers this week said that social media isn’t a new factor in trading but has become a more important driver in retail investing, according to a person familiar with the meeting.

A younger generation of traders has shunned traditional gatekeepers—brokers who give advice over the phone or in person—in favor of making their own decisions about which securities to buy.

Inexperienced investors looking for trading ideas can ride the momentum created by communities such as Reddit’s WallStreetBets, where gung-ho traders goad one another to buy shares and hold them until the price goes “to the moon,” as the traders often say. Their tolerance for losses is high, and many participants revel in buying stocks that are disfavored by bigger investors such as hedge funds.

Trading platforms such as Robinhood Markets Inc. have benefited. Robinhood doesn’t charge commissions, and its “gamification” features celebrate trading with digital confetti and enable push notifications that keep the market on users’ minds.

This week’s surge in trading temporarily prompted Robinhood to prevent customers from buying some of the most popular stocks. The firm said it made the move for risk-management reasons. Robinhood and other online brokers were asked to provide more cash to clearinghouses to cover transactions.

The four-member SEC said Friday it would closely review the firms’ explanations for their moves to limit trading.

SEC rules were updated in 2019 to require stockbrokers to act in the best interests of investors when providing investment advice. But Robinhood, Charles Schwab Corp. SCHW -4.09% and other online trading platforms avoid such rules when they enable investors to buy and sell shares on their own, without the intermediation of a broker.

Democratic lawmakers have said the rules are too weak, mainly because they didn’t ban many conflicts of interest that brokers face. Democrats are likely to have more influence over the SEC’s agenda because they will control relevant committees in both the House and the Senate.

“These wild fluctuations are just the latest indication that many private-equity firms, hedge funds, and other investors, big and small, are treating the stock market like a casino, giving little consideration to the companies, communities, workers, and consumers that may be affected by these risky bets,” Sen. Elizabeth Warren (D., Mass.) wrote Friday in a letter to the SEC.

Sen. Sherrod Brown (D., Ohio), who will take over as chairman of the Senate Banking Committee, which oversees the SEC, said this week he would convene a hearing to examine the tumult and the commission’s supervision.

His counterpart in the House, Rep. Maxine Waters (D., Calif.), chairwoman of the Financial Services Committee, said Thursday she will hold a hearing.

“We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility,” she said in a statement.

But Sen. Pat Toomey (R., Pa.) said low-cost trading platforms have largely been a positive development for smaller investors and urged restraint.

“When examining this episode, regulators and Congress should tread with extreme caution and avoid needlessly inserting themselves into equity markets,” Mr. Toomey said in a statement.

Barbara Roper, director of investor protection at the Consumer Federation of America, said the GameStop episode suggests rules ought to be updated to account for brokers’ ability to drive investor behavior using psychological cues rather than outright recommendations.

“They have these nudges that are designed to encourage conduct that is profitable for the firm and not necessarily good for their customers,” Ms. Roper said. “The companies need to be accountable for their nudges.”

One of Mr. Gensler’s recent MIT lectures looked at Robinhood, Charles Schwab and other firms that offer free trading, a trend he traced to the abolition of fixed commission rates in the 1970s, according to a video of the class available online.

Mr. Gensler didn’t criticize Robinhood in his lecture but explained how its growth influenced other brokers to copy its pricing model.

“What we’ve found whether it is in Facebook or many other online applications outside of the financial world, it is zero fee,” Mr. Gensler said in the lecture. “And then the business model is earning money is some other way.”

Mr. Gensler didn’t respond to a voice-mail message seeking comment Friday.

With commissions at zero, online brokers have to make money other ways. One is to sell customers’ orders to high-speed traders, which execute them like a stock exchange would. The speedy traders have profitable ways to trade with mom-and-pop orders and get deeper insight into market demand.

The SEC is short handed following the departure of former Chairman Jay Clayton and many of his senior staff. The acting chair, Democratic commissioner Allison Herren Lee, made a brief statement about the market turmoil for the first time on Wednesday.

It is unclear how soon Mr. Gensler will get a confirmation hearing, where senators are likely to question him about this week’s events.

“She’s got an awkward position being acting chair, and that is got to have a limiting effect,” said James Cox, a law professor at Duke University. “It means all the more reason to try and accelerate the confirmation for Gensler and get his staff in.”

FT : Digital nomads shake up watch finding model

Digital nomads shake up watch finding model
‘Finders’ use power of online networks to source luxury pieces, bypassing traditional dealers

David Duggan is one of Europe’s most highly respected watch dealers. He started in 1975 when he and his brother, a numismatics expert, would travel to towns across the UK, rent hotel rooms and hope that a few owners of pocket watches and coins would drop by looking to sell.

Duggan would then resell his watch finds at fairs, auctions, markets and in London’s Portobello Road. In 1989, he took a permanent space in the Bond Street Antiques Centre, where he continued to trade until 2002, when he moved to an elegant, double-fronted shop in Mayfair’s prestigious Burlington Arcade.

His shop is known among Patek Philippe, Rolex and Tudor aficionados the world over as a traditional store where business is done in the old-fashioned way — by Duggan and a small team of experts working to ensure customers get the right watch at a fair price so that everyone is happy.

There is an option to trade in for something else at a later date, and the business has invested in workshop equipment to maintain its status as one of a handful of independent, Rolex-approved service centres in the country. And, if a customer is after a particular watch: “I have a ‘wants list’,” says Duggan. “It’s a big pile of notes which sits on my desk, held together with an elastic band.”

But a few doors down the arcade, things are done a bit differently. Danny Shahid, a trader who has been in the watch business for less than a decade, is one of Burlington Arcade’s most recent tenants. Bundles of notes and elastic bands do not feature in his methods of finding watches for his clients seeking the thrill of an instant purchase. If he receives a direct message from one of his 90,000 Instagram followers looking for a particular, hard-to-source model, Shahid simply puts out the call via his 15 WhatsApp broadcast messaging groups, each one of which reaches 256 people.

Within seconds, close to 4,000 watch enthusiasts, dealers and finders around the globe are alerted, and often the watch in question is quickly sourced.

Shahid is certainly not the only young watch dealer working in this way. But he is one of the few happy to publicise their role and also one of the few to progress to a bricks-and-mortar retail space during lockdown, when buying timepieces using the internet is seen as ever more normal.

Born and raised in Middlesbrough, north-east England, Shahid began travelling to London at weekends when he was 15 to work with his uncle producing gem-set and gold-plated iPhones. The business unexpectedly took off when Harrods, the department store, signed a deal to be its exclusive retailer. “Shortly afterwards, a member of the Qatari royal family [Qatar Holdings bought Harrods in 2010] asked my uncle if he could find someone to buy his 2008 Rolex Day-Date II for £10,000,” says Shahid. “He gave it to us on consignment, we sold it for £14,500 and were allowed to keep the rest. It was then that I decided to become a watch dealer.”

By the age of 17, Shahid had moved to London and, with his uncle’s help, rented a small retail unit in Hatton Garden on a monthly contract. “I was more or less buying one watch at a time, flipping it and using the profit to buy another,” says Shahid. “Often I was trading with other dealers, which was easier then because there were relatively few of us and only around 20 per cent of business was done online — although eBay was a very good place to buy watches back then.”

But sales really took off when he started an Instagram account in 2012. “I have always been interested in fashion and posted a picture of a Rolex watch next to a Christian Louboutin shoe — it was a type of watch image that had not previously been seen on Instagram, and it went viral.”

Shahid says he now sells up to 15 watches a day, often acting as a “finder” for clients in search of elusive models.

On one occasion he was asked by a longstanding customer to find a rare Richard Mille RM055 Bubba Watson Asia edition, one of just 35 available worldwide. After three days trawling social media, he tracked one down to Singapore, flew there to buy the watch for £145,000 and delivered it straight back to his customer in the UK.

Another time, Shahid says he made £10,000 in just over 24 hours by flying to Morocco and buying two hard-to-obtain Rolex chronographs.

While his style is in stark contrast to the old-school watch and jewellery dealers of Burlington Arcade, Shahid still believes that having a physical store in such a traditional and highly regarded location makes it easier to provide a personal service and instils confidence in customers.

But his quick-fire, social media-based method of watch finding is not universally admired.

Silas Walton, founder of the collectable pre-owned etailing site A Collected Man, says there is undoubtedly a place for peripatetic finders who are able to quickly track down current, hard-to-obtain watches such as the latest Rolex steel sports models, but those he deals with prefer to keep a low profile. “All the really successful watch sourcers I know operate very discreetly, quietly travelling the world finding and buying on behalf of a few clients with whom they have built-up strong relationships.

“Mainly, however, we work at the other end of the spectrum — the people we find watches for usually want something far rarer than a modern Rolex. They tend to be high-end enthusiasts with deep pockets who have experienced the ups and downs of collecting in several different areas, such as cars, art and wine.

“These types tend to be the least pushy, the least aggressive and the most patient. It tends to be a long game played by long-term thinkers with whom we have gained a high level of trust,” Walton adds.

Unlike the immediacy of one of Shahid’s WhatsApp broadcasts, Walton’s chase can be very long indeed — he recently spent two years tracking down a Philippe Dufour Duality on behalf of an American client who happily bought the watch, despite its value having risen to more than $1m in the interim.

“Although only nine examples exist and most of them will probably never surface from the collections they are in, I felt certain that I could eventually find one,” says Walton.

“The client agreed to bear with me, waited patiently, and it paid off for every­one.”

FT : Watchmakers ramp up fashion tie-ups to target younger buyers

Watchmakers ramp up fashion tie-ups to target younger buyers
Fashion deals keep luxury watch brands up with the times

“Over the years, while designers have been concentrating on everything from the bosom to the knees, the wrist somehow got overlooked,” ran a print advertisement beside a photograph of male and female hands wearing watches under the headline “Dior Discovers the Wrist”.

The year was 1968, the advert was promoting “The Christian Dior Collection by Bulova” and in the half-century since, fashion and watchmaking have been locked in a dance, or rather they have been dance partners periodically trying out new steps and moves.

Now, a new combination of fashion and watches is gaining in popularity as collaborations increase. One of the more interesting launches this autumn will be Armani’s debut of a new prestige watch collection. “It will be a Giorgio Armani watch ‘by Parmigiani Fleurier’,” says Davide Traxler, Parmigiani chief executive. “It is a clientele we don’t necessarily reach, and they can discover Parmigiani Fleurier through Armani design.”

While critically acclaimed, Parmigiani, owned by Swiss investment company Sandoz Family Foundation, is known to lose money and Traxler, who was hired to turn the business around, sees the Armani association as a key step. “It’s a three-year plan in which the losses have to be reduced by one-third per year, to come to zero. The first leg of the plan happened perfectly in 2019; 2020 did not follow as expected, due to Covid. So we are not on plan but we are better, with the cash burn lower than at any time in the past 15 years. [The Armani partnership] will certainly contribute to the success of our plan.”

Dior was a pioneer of licensing deals and one reason the company continued after the founder’s death in 1957 was the commercial importance of these deals. It was licensing that first brought fashion and watches together: an early adopter was Gucci, which granted a licence to Severin Wunderman in the early 1970s. By the 1980s, names as diverse as Yves St Laurent and Guess had lucrative licensing deals. The next decade was a period of spectacular growth: sales of Guess watches totalled $18m in 1985 but by 1996 had risen to $165m.

By then some higher-end brands, including Chanel and later Dior and Louis Vuitton, had taken the next step and started watch divisions with facilities in Switzerland. The rationale was that a brand needed a strong, credible watchmaking presence to sell premium watches at a time when knowledge of and spend on watches was increasing.

Today this phase of development is quite mature. Chanel’s highly successful J12 is in its 21st year of production. Meanwhile, Dior this year launches a new watch line designed by Victoire de Castellane, her first since 2003.

Another pioneer of this model was Hermès. “My great-grandfather started to be interested in that field because he was able to put Hermès-made leather bands on Swiss watches,” says Guillaume de Seynes, scion of the Hermès dynasty and chairman of its watch division, La Montre Hermès. “Then in the 1970s my uncle Jean Louis Dumas wanted to open a subsidiary in Switzerland; at that time it was a fully quartz business.”


The great success of the 1980s was a watch that continues to be a classic, the Arceau, created by legendary Hermès designer Henri d’Origny, but by the turn of the century things began to change again. “I joined in 1998 and thought that we had to develop a different strategy and be really perceived as being at the heart Swiss mechanical watchmaking and to be able to propose some serious movements,” says De Seynes.

This meant serious investment. Having begun with 10 employees in 1978, La Montre Hermès now employs 350 people in Switzerland and produces 60,000 watches a year. It also bought a share of movement maker Vaucher in 2006, acquired dial maker Nateber in 2012 and a year later took a majority stake in case manufacturer Joseph Erard. In 2019, Hermès was among the winners of the watchmaking Oscars, the Grand Prix d’Horlogerie de Genève, which De Seynes says was a “strong step”.

Brands on both sides increasingly see the value of exploiting each other’s names. Ricardo Guadalupe, Hub­lot chief executive, believes “the benefit for them [the fashion partner] is that it is an easy way to get a watch into their portfolio without becoming a specialist in watchmaking”. Hublot has worked with Japanese designer Yohji Yamamoto and produced four limited series of watches with LVMH stablemate Berluti.



For Guadalupe, it is about finding ways to extend the brand reach to new consumers. “Berluti is strong in Japan and there is a big fan base, so when we do a Berluti watch, 30 to 40 per cent of that specific model sells in Japan.” It can also attract different age groups: Guadalupe says while the core age of 30-50 accounts for more than 70 per cent of Hublot sales, a fashion collaboration typically targets the 25-35 age bracket. “Between 30 and 50 per cent of those we touch are new customers and then we convert them to a ‘normal’ Hublot watch in the future.”

For him the key value is in communications. “It is much easier to talk about a £21,700 Hublot Big Bang Unico Berluti than a Hublot Classic Fusion for £6,400, but that is the watch that we sell every day.” The Berluti Big Bang’s special feature is its use of leather, not just on the strap but on the dial. Guadalupe says by using materials in a way not ordinarily found in watchmaking, it offers an element of difference.

Francois Bennahmias, chief executive of Audemars Piguet, says collaborations must appear credible to the market, as “nobody buys fake and phoney any more”. His nascent partnership with UK fashion brand Ralph & Russo is a way of getting his watches in front of stylish women with spending power. “You rarely see watches on the catwalk,” he says, but if handled correctly, this collaboration could emulate the success of the frosted gold concept he developed with London-based jeweller Carolina Bucci, he adds. The 300-piece run of watches generated £12m in sales and the decorative technique developed by Bucci has been popular with customers on other pieces in the collection.


“This type of partnership only makes sense if it remains very exclusive,” agrees Patrick Pruniaux, chief executive of Kering’s watch division, which has embarked on an informal shared marketing initiative with suitmaker Brioni, also owned by the French luxury group. “It has to be curated in terms of a service to the end consumer. The prime [objective] here is really engaging with some consumers who may not know the brand well and explaining how and why we do things.”

Meanwhile, Chopard’s LUC fine watchmaking division has worked with Italian suit brand Kiton to create a 100-piece limited edition of its classic, understated LUC XP. “I met Antonio de Matteis, the CEO from Kiton at the Mille Miglia [the Chopard-sponsored rally] in 2018,” says Chopard co-president Karl-Friedrich Scheufele. “I was a bit hesitant about teaming up with a fashion house, but this is about more than fashion.”


Sales were brisk, with 80 per cent of pieces sold in three months, but Scheufele stresses other less immediately quantifiable benefits. “We became visible to more customers and some younger customers. I think it certainly helped the awareness, as you are stepping out of the watchmaking circle but without having to dumb it down; it boils down to having a really qualitative approach. I would not rule out more like this in future.”

One of the most attractive aspects of this business model is the flexibility and marketing opportunities it offers. Some partnerships can be built over years, while others are single activations, as was the case with Richemont-owned IWC and swimwear brand Orlebar Brown, which resulted in the creation of a collection of IWC beachwear and involved a one-off IWC-spec Solaris sailing yacht. Using a light-touch contractual structure, “we shared costs for the photo shoots and the marketing, and off it went”, says Chris Grainger, IWC chief executive. “Once you have the background of the boat, and the background of the professional styling around it, it is a lot stronger than just the watch on its own or the fashion pieces on their own.”

FT : What should the Hermès man smell like now?

What should the Hermès man smell like now?
Workshop steam, cashmere and botanical extracts, says the creator of the brand’s new men’s scent, H24

What do textures smell like? Can one translate the sense of coarsely woven fabric held between the fingers, or the feel of cashmere next to skin, into an olfactory experience? That was the task Christine Nagel, the nose at Hermès, gave herself when she set about creating the new men’s fragrance for the house – the most significant “masculine” launch in 15 years – which is landing on counters this month. 

“When I create a perfume, I need to physically give it volume or texture,” says Nagel, wearing her signature round frames. “I love it when people say it’s soft like velvet or silk.” The Swiss-born perfumer worked with Hermès menswear creative director Véronique Nichanian to create the scent, named H24, which is inspired by Nichanian’s ready-to-wear collections. “When you look at Véronique’s fashion shows, you can touch the textures with your eyes,” she adds. “You can see just how soft the leathers and wools are. There are a lot of similarities in the way we work.”


The house’s last hit fragrance for men was the award-winning Terre d’Hermès, created in 2006 by the acclaimed Jean-Claude Ellena. “I had a monument in my heritage,” says Nagel, who arrived at Hermès in 2014 and took over as head perfumer in 2016. “It still has a following and it still recruits customers.” The pressure to produce another success is considerable, but Nagel is well versed in making a bestseller: she co-created the powdery hit Narciso Rodriguez for Her, masterminded the sugary Miss Dior Chérie and signed the succulently fruity Armani Si, among others. “It’s not a competition, but I wanted to make a perfume that could exist alongside Terre d’Hermès but be different. It was a big challenge that I took up with great pleasure.”

Nagel took Terre d’Hermès apart to see how it was structured. “I wanted to approach it like a watchmaker – to understand a good mechanism, sometimes they need to dismantle the watch.” She then went off in a completely different direction, seeking out unconventional ingredients – like clary sage, a botanical with a distinctly woody quality, which became the backbone of the scent. “Many men’s fragrances today are illustrated by woody notes – dry, oriental, fresh woody, spicy woody, whatever. But for me the botanical was obvious, because in the vegetal there is the sap, which is the source and vivacity of life.”

Secondly, she added a jolt via narcissus absolute, a strong and rigid note derived from the daffodil, and one that needs to be used sparingly. “I did a co-distillation with a secret material that softens the narcissus to remove that nervous side,” says Nagel. She likens the punchy addition to the electric touches of colour in Nichanian’s collections – a bubblegum-pink jacket or a Ferrari-red neckerchief in a sea of palatable neutrals.

Next came rosewood essence, a fragrance that was forbidden in perfume-making for many decades because harvesting it resulted in the deforestation of the Amazon. Nagel has found a few small-scale producers of the South American tree in Peru, who grow them sustainably: “I am very happy to be using a material that was completely forgotten for so many years.” 

The final note is a synthetic molecule – sclarene – which came to Nagel after she visited the tailoring workshops of Hermès. She recalls watching the artisans applying damp cloths onto wool suits before pressing them with a heavy metal iron. “The smell that comes from there, it’s a warm metallic steam. Sclarene, which captures this essence, is very unusual and not widely used in perfumery,” says Nagel. “I remember the day I made Véronique smell it, she said, ‘Yes! This is the smell from our workshops.’ She was really attracted to it, because it’s also the sensuality of that which is well made.”

Together, Nagel and Nichanian are creating a new sensory identity for today’s Hermès man, drawing on the house’s history while constantly modernising and adapting. “I’ve chosen the botanical, this power of the sap, because it fits our times – it’s different and innovative,” says Nagel. “When you see the young men in Véronique’s fashion shows, you feel the vitality, you feel that they are urban men but who are rooted in their own heritage. I hope that feeling is the same with H24.” 

FT : Electric cars surge in popularity after manufacturers’ late dash

Electric cars surge in popularity after manufacturers’ late dash
European state incentives and emissions regulation drive adoption but meeting new targets will be tougher

Last January, Europe’s carmakers were gearing up for their most challenging year in recent memory — one in which they would be forced to vastly expand their sales of electric and hybrid cars or fall foul of tough new emissions regulations and risk hundreds of millions of euros in fines.

Then came Covid-19, and lockdowns that brought assembly lines to a standstill for weeks, delaying for several months the rollout of key emissions-free models, such as Volkswagen’s flagship ID. 3.

The result was a late dash, as manufacturers saw their finely honed strategies torn up by events.

Of the nearly 730,000 battery electric vehicles sold in western Europe during 2020, over 300,000 were delivered in the last three months of the year, according to research by Bernstein.

Some carmakers, such as Daimler, only crossed the line after a concerted effort to drive sales right at the end of the year.

Volkswagen narrowly missed its target, despite teaming up with over-compliant rivals such as MG and the London EV Company.


Jaguar Land Rover was also forced to pay penalties, despite a late push that saw its electric Jaguar I-Pace account for 69 per cent of the brand’s western European sales in December.

Carmakers were aided in their electric efforts by governments that ramped up incentives for battery-powered cars in an attempt to boost economic activity.

Sales in Germany, which tripled year on year, were supercharged by Angela Merkel’s government deciding to double subsidies for electric cars, resulting in customers being able to avail themselves of a €9,000 discount per new vehicle.

Inquiries for new electric cars rose by 80 per cent in the second half of the year on Germany’s AutoScout24 site, the market leader, and 13.5 per cent of cars sold last year in the country were battery-powered, according to the VDA industry lobby group.


“Incentivisation obviously has played a very important role in 2020 to really push electrification over a kind of tipping point,” said BMW sales chief Pieter Nota.

Jochen Kurz, a director at AutoScout24, said “the next few months will show whether demand can continue at this high level”. He added that “the decisive factor here will not be the cost subsidies alone, but also the expansion of the charging infrastructure”.

Impending bans on the sale of traditional cars also stimulated the market last year.

The number of UK consumers searching online for an electric car doubled overnight after the government’s announcement of a phaseout of petrol sales by 2030, according to Auto Trader.

During the year, one in six new cars bought in the UK was electric or hybrid, official figures show.

For legacy carmakers, the year was an opportunity to plant a stake in ground previously dominated by Tesla.


The mass-market brand with the highest proportion of electric sales across Europe last year was Hyundai at 13 per cent, due to the popularity of its electric Kona model.

European president Michael Cole told the FT he expects new plug-in hybrid variants of its flagship SUVs, the Tuscan and Santa Fe, as well as a new battery-only vehicle will see its electric mix increase.

Yet it was Renault’s eight-year-old Zoe model that finished as the most registered model last year in western Europe, accounting for some 95 per cent of the carmaker’s full-electric car sales and surpassing both Tesla’s Model 3 and the ID. 3, according to research by analyst Matthias Schmidt.

In fact Tesla was the only carmaker to suffer a fall in pure electric sales with its market share falling by 16 percentage points to 13.4 per cent in 2020 — though analysts attribute this fall to the impact of Covid-19 on its distribution channels to Europe.

Volkswagen, the market leader in Europe at a group level, selling almost 174,000 electric cars in the region, plans to push harder this year with the Wolfsburg-based company aiming to more than double electric car sales.

Others have set similar targets for the coming year.

“We aim to increase the sales of our electrified vehicles by more than half in 2021,” said Mr Nota at BMW, “and that underlines the importance of electro mobility as a major growth driver in the company.” Within that target, BMW aims to double the sales of fully electric vehicles in 2021.

Despite most European manufacturers meeting, or even exceeding, their individual CO2 targets, campaigners have criticised the use of hybrid models, which combine a petrol or diesel engine with a battery-powered drivetrain, to make up the gap.

Although these vehicles can be driven for short distances using the battery alone, environmental groups say the vast majority of hybrid owners rely solely on the combustion engine. 

“I would expect that hybrids will go down rapidly when fiscal stimulus is reduced,” Audi boss Markus Duesmann told the FT. “When the subsidies end for hybrids, no one buys them . . . because it's not the real thing.”

WSJ : Covid-19 Patients Are Doing Their Own Research

Covid-19 Patients Are Doing Their Own Research
To advance scientific knowledge of the disease, lay people are organizing to generate data about their experiences

A month after her Covid-19 diagnosis last March, Lisa McCorkell wanted to know why she was still struggling with a cough, shortness of breath and other debilitating symptoms. Her doctors didn’t have answers, so she and a group of other Covid patients took matters into their own hands. They formed a research group on a Slack channel and launched their own study.

“I was looking for validation, that my experience was reflected in the others,” said Ms. McCorkell, 28, of Oakland, Calif., who was finishing her graduate studies in public policy when she was diagnosed.

The work of the Patient-Led Research for Covid-19 group—including a rapid survey and analysis of 640 patients and a detailed paper tracking symptoms in thousands of patients who have been sick for over 28 days—is helping to drive a larger reckoning about how science values and uses knowledge produced by outsiders.

“Covid has helped us see some of our blind spots in the clinical and research enterprise,” said Dr. Helen Burstin, CEO of the Council of Medical Specialty Societies, which focuses on improving care and health research. “We need to figure out how we actually work with patient-led research efforts when the patients are the ones in leadership.”

Citizen science, the name given to a range of scientific projects in which patients participate, covers myriad experiences. Some patients create and run their own experiments, sharing consumer DNA and blood test results and tracking body temperature, heart rate and other biological measures. Programs such as the Patient-Centered Outcomes Research Institute, an independent nonprofit authorized by Congress, boost collaboration with professional scientists by requiring that researchers seeking funding involve patients in the design and development of studies.

Covid citizen scientists generated information about symptoms, such as neurological issues, that didn’t garner a lot of attention at the start of the pandemic. They highlighted the overlooked challenges faced by people whose symptoms last longer than 28 days. The studies were limited by drawing largely from patients who joined online support groups, but they gained the kind of recognition by professional scientists that citizen science doesn’t always get. Francis Collins, the director of the National Institutes of Health, the biggest funder of biomedical research in the U.S., highlighted Covid citizen science in his blog on the NIH site earlier this month, citing the work of the Patient-Led Research for Covid-19 group for providing “a first-draft description” of aspects of the disease.

The pandemic has created an opening for citizen scientists, because even now clinicians don’t fully understand the virus. Early clinical trial data comes mainly from studies involving hospitalized patients, whose experiences may not apply to those who are suffering but don’t end up in the emergency room.

“There is a real gap in the medical data. We had to figure out things for ourselves,” says Diana Berrent of Long Island, N.Y., who set up an online group of Covid patients, called Survivor Corps, after she was diagnosed last March. When a friend who also had Covid told her she suffered from constant ringing in the ears, Ms. Berrent polled others in the group asking if they had similar experiences. She was surprised by the number of responses and the impact it had on people’s quality of life. The symptom got added to a 5,600-person survey that Survivor Corps and the Indiana University School of Medicine conducted about patient experiences.

Patients who want to lead Covid research projects often must navigate tension between their sense of urgency and the traditional scientific process, which typically requires a long peer review process before publication in a journal, said Emily Sirotich, a Ph.D. student at McMaster University in Canada. On March 12, the day the WHO declared Covid a pandemic, Ms. Sirotich joined a Twitter conversation between rheumatology patients and doctors, who were on equal footing when it came to Covid: No one understood the disease. “Everyone was worried,” she said.

The patients and doctors formed the Covid-19 Global Rheumatology Alliance on a Slack channel. They decided to create two data-generating sources, a physician-directed international registry of rheumatic patients with Covid and a patient-driven experiences survey. “The idea exploded overnight,” said Ms. Sirotich. A steering committee of physicians and patients secured funding for the project through the American College of Rheumatology, a professional organization, with the majority of funds coming from pharmaceutical companies. Members of the steering committee and the eight-person patients’ board—including Ms. Sirotich, who serves as Patient Engagement Lead— receive honorariums for participating.

Patients wanted to share the survey data right away, but the researchers argued that the scientific community wouldn’t use the information to inform patient care without the validation of going through peer review. “It has to be accurate,” said Ms. Sirotich.

The two groups tried to strike a balance, Ms. Sirotich said. Patients created overview summaries of the raw data that they immediately disseminated to support groups for use in personal decision making. The physicians and patients also co-wrote and submitted articles with more detailed data analysis to peer-reviewed journals and conferences.

“Covid gave us the opportunity to show that patients can produce valid data and reliable information about what they are experiencing,” Ms. Sirotich said.

In December, the Patient-Led Research for Covid-19 group posted a paper based on analyzing data from over 3,700 patients to the MedRxiv public server, which professional scientists have used throughout the pandemic to quickly make results available to the wider community before peer review. The group also plans to submit the paper to a scientific journal.

Eric Topol, director of the Scripps Research Translational Institute in La Jolla, Calif., and a proponent of patients tracking their own health, tweeted the results. “There is a dearth of information about Covid,” Dr. Topol later said. As a professional scientist, he added, “The paper provided invaluable new insights to me.”

But other scientists questioned Dr. Topol’s decision to disseminate work that to them didn’t seem scientific enough. “I had concerns about the study,” said Adam Gaffney, a pulmonary specialist and instructor at Harvard Medical School. Dr. Gaffney said the decision to include data from people without positive Covid or Covid antibody test results called into question the researchers’ conclusions. “I think the standards and the methods should not be different depending on who is doing the research,” he said.

Given how few people could obtain Covid tests at the beginning of the pandemic, the patient researchers decided not to exclude valuable data, said Athena Akrami, 38, one of the paper’s authors, who had Covid. “If you only look at people with positive tests, you miss out on a whole piece of the science,” she said.

Gina Assaf, a founder of the Patient-Led Research group, said patient researchers need better access to the research infrastructure that professional scientists use. The group is now working with Dr. Burstin’s organization to try to develop a new collaborative model. “There is value beyond Covid in letting the people who experience the illness lead the research,” Ms. Assaf said.

Ms. McCorkell, who never anticipated turning into a Covid citizen scientist, said traditional science still takes too long to help patients. “We helped catapult Covid research way ahead of where it would have been had we not been doing this work,” she said.

WSJ : The Real Force Driving the GameStop Revolution

The Real Force Driving the GameStop Revolution
Individual traders banded together this past week to move markets like never before. But the buildup to this remarkable moment has been happening for decades.

This was the week when a bunch of amateur traders made Wall Street’s finest look like idiots.

From Jan. 25 through Jan. 29, a ragtag army of individuals sent shares in GameStop Corp. GME 67.87% up 500%, and sent many others skyrocketing too. In three days, many of these stocks gained more than most do in a decade. The hedge funds on the other side of these bets lost billions.

This movement is the culmination of nearly five decades of the democratization of markets set off by none other than the late founder of Vanguard Group, Jack Bogle.


For all the hyperventilating over this week’s financial revolution, though, investors should regard it as the latest phase in a long evolution—and unlikely to disrupt markets overall.

Still, this is a remarkable moment. It’s as if a bunch of couch potatoes watching a Los Angeles Lakers basketball game on TV belted down their beer and nachos, barged onto the court—and proceeded to block LeBron James’s shots and mercilessly dunk on Anthony Davis.

Amateur investors have always had advantages over professionals: They can invest for the long run and ignore the short term, since they can’t get fired for underperformance and don’t have clients who give them money (or take it away) at the worst time.

Now, however, amateur traders are asserting their advantages, too. They can communicate instantaneously, band together by the thousands—millions, perhaps—and buy or sell commission-free.

Thousands of members of WallStreetBets, a forum at the online community reddit.com, have been leading the swarm of amateur individual traders buying stocks that hedge funds and other institutional investors were betting against.

Moving in sync and en masse, such traders can drive a stock way up or down even if each trader commits only a few dollars. Professionals, on the other hand, are legally restricted from colluding and incur much higher brokerage costs.

These new mobs of amateur traders resemble swarms of animals that often coalesce in the wild. You may have seen videos of an immense school of fish flashing in unison through the sea or a murmuration of starlings forming a vast swirling vortex in the sky.

These swarms shift direction in swift, coordinated bursts to find prey and evade predators.

But it’s simplistic to think of this trading movement as a frontal assault on Wall Street’s elite by Joe Schmo and Jane Doe.

The caricature of this new breed of fast-moving trader is a 19-year-old living in mom’s basement. Locked down and bored by the pandemic, with fewer sporting events to bet on and stimulus checks (or “stimmies”) burning a hole in his pocket, he gets his kicks trading stocks. Often, he buys and sells options, which can produce even bigger, faster gains.

There’s some truth to that stereotype. The WallStreetBets culture can be rude and crude, seeking short-term thrills with no regard for risk. Yet some of its leaders are highly sophisticated, and not everyone piling into stocks this week belongs to WallStreetBets.

Sean Mattingly is a 35-year-old semiconductor engineer in the Portland, Ore., area. He favors a simple, diversified portfolio of low-cost index funds that he almost never trades.

On Jan. 25, Mr. Mattingly was on Bogleheads.org, one of his favorite websites, which advocates long-term investing. There, Mr. Mattingly stumbled on a reference to GameStop’s wild price moves.

Cautious as he is, Mr. Mattingly likes to reserve up to 5% of his portfolio for what he calls funny money. After visiting WallStreetBets, he thought, “Wow, this might be fun. I’ll take a chance and see what happens.”

He bought “less than 20” shares of GameStop at about $110 on Jan. 26. Mr. Mattingly says it “absolutely has been fun” owning GameStop, which went as high as $483 this week. But, he says, “it has also been really fun to be—without expecting to—part of what is becoming a movement.” (He says he sold at $400 a share on the morning of Jan. 29 and it “felt great.”)

That movement is Mr. Bogle’s monster love-child. It’s the culmination of 45 years of relentless decline in the cost of investing that kicked off when the late Vanguard founder launched the first index mutual fund in 1975. Stock funds used to carry commissions of up to 8% and annual expenses as high as 2%; now you can buy index funds at zero commission and with expenses under 0.05% annually.

Decades ago, small investors might pay as much as 5% to trade a stock. A stockbroker was a 9-to-5 guy in a paneled office who picked your pocket on every trade. Nowadays, your stockbroker is in your pocket, as apps on your phone let you trade stocks at zero commissions, anytime you want.

WallStreetBets is the ultimate stage of this evolution. Thousands of people can amass small trades into giant pools of capital and whip each other into a collective frenzy.

In what neuroscientists call “dynamic coupling,” the brain activations of different people doing the same task converge, firing in sync. In such situations, says Princeton University neuroscientist Uri Hasson, “I’m shaping the way you behave and you’re shaping the way I’m behaving. And coordinated behavior across many, many individuals can generate dynamics that are larger than anything they could produce separately.”

That can also make emotions run high. Although short-selling hedge funds are fairly small in the financial ecosystem and their managers are more often mavericks than members of the establishment, the flash mobs have sometimes portrayed them as Goliaths.

And when, on Jan. 28, leading online brokerage firms restricted buy orders for some of this month’s hottest stocks, thousands of small traders took to social media simultaneously to express outrage, demand redress and exhort each other to “HOLD THE LINE,” by not selling their shares.

While the David-versus-Goliath narrative was always overblown, the populist anger against brokerage firms for restricting trading is real—and immediately was mirrored in Washington, where several members of Congress called for investigations into the matter.

This market moment, with its surge in technology-fueled social speculation, is an echo of 1999 and early 2000, when television ads for brokerage firms celebrated moms day-trading in their pajamas and claimed that tow-truck drivers could afford to buy tropical islands.

>>> US Close Dow -2.03% S&P -1.93% Nasdaq -2% Russell -1.56%

Closing Stock Market Summary

The S&P 500 fell 1.9% on Friday, as the continuation of the short-squeeze mania wore out investors and fed into concerns about fund managers selling long positions to cover their shorts. The Nasdaq Composite declined 2.0%, the Dow Jones Industrial Average declined 2.0%, and the Russell 2000 declined 1.6%.

Brokerage firms, most notably Robinhood, eased some of the trading restrictions they temporarily placed yesterday on heavily-shorted stocks like GameStop (GME 325.00, +131.40, +67.9%) and AMC Entertainment (AMC 13.26, +4.63, +53.7%). There were still limitations, though, which might have tempered the intraday rebound gains in these stocks. 

It was evident that the so-called rebellious spirt among retail traders was still burning strong today. Considering these emotions, the volatility, and recent commentary about the market being vulnerable for a correction, there was an accompanying suspicion if the short-squeeze mania was the catalyst for a potentially extended pullback. 

From a technical perspective, the S&P 500 closed marginally below its 50-day moving average (3716), which is a key technical level many traders watch for short-term purposes. All 11 S&P 500 sectors finished lower with losses ranging from 0.5% (utilities) to 3.4% (energy). 

Separately, better-than-expected earnings reports and encouraging vaccine news failed to inspire enthusiasm in the broad market. 

Dow components Visa (V 193.25, -4.97, -2.5%), Honeywell (HON 195.37, -7.47, -3.7%), Caterpillar (CAT 182.84, -1.50, -0.8%), and Chevron (CVX 85.20, -3.82, -4.3%) closed lower following their earnings reports.

Johnson & Johnson (JNJ 163.13, -6.03, -3.6%) said its single-dose vaccine candidate was 66% effective in protecting against COVID-19, and Novavax (NVAX 220.94, +86.93, +64.9%) said its vaccine candidate produced an 89.3% efficacy rate in its Phase 3 trial in the UK. NVAX shares rose 65%. 

Interestingly, longer-dated Treasuries traded lower despite the weakness in equities, which was symptomatic of cash-raising efforts. The 10-yr yield increased four basis points to 1.09%, while the 2-yr yield decreased one basis point to 0.11%. The U.S. Dollar Index increased 0.1% to 90.55. WTI crude futures decreased 0.2%, or $0.12, to $52.18/bbl.

Reviewing Friday's economic data:

  • Personal income increased 0.6% m/m in December (consensus 0.1%) and personal spending declined 0.2% (consensus -0.5%). The PCE Price Index was up 0.4% m/m (consensus 0.3%) and the core PCE Price Index was up 0.3% (Briefing.com consensus 0.1%), leaving the yr/yr rates at 1.3% and 1.5%, respectively.
    • The key takeaway from the report is that it wasn't as bad as feared, which qualifies as good news for a market that has seen a number of economic reports of late not live up to expectations.
  • The Q4 Employment Cost Index increased 0.7% (consensus 0.5%), seasonally adjusted, for the three-month period ending in December 2020 after increasing 0.5% for the three-month period ending September 2020. Wages and salaries, which account for about 70% of compensation costs, rose 0.9%, while benefit costs, which make up the remainder of compensation costs, increased 0.6%.
    • The key takeaway from the report is that compensation costs for civilian workers, private industry workers, and state and local government workers all moderated from the same period a year ago.
  • The final January reading for the University of Michigan Index of Consumer Sentiment checked in at 79.0 (consensus 79.2) versus the preliminary reading of 79.2 and the final reading of 80.7 for December.
    • The key takeaway from the report is that sentiment held relatively steady in January despite rising coronavirus cases/deaths, the insurrection, the impeachment of President Trump, and a deterioration in the labor market.
  • Pending home sales decreased 0.3% m/m in December (consensus -0.5%) following a revised 2.5% decline in November (from -2.6%).
  • The Chicago PMI for January increased to 63.8 (consensus 58.0) from a downwardly revised 58.7 in December (from 59.5).

Looking ahead, investors will receive the ISM Manufacturing Index for January and Construction Spending for December on Monday.

  • Russell 2000 +5.0% YTD
  • Nasdaq Composite +1.4% YTD
  • S&P 500 -1.1% YTD
  • Dow Jones Industrial Average -2.0% YTD