The insane market action in small-cap stocks like Gamestop GME,
and AMC Entertainment AMC,
showed unbelievable reactions across Wall Street.
But while some may be tempted to dismiss it as a side event, Société Générale’s chart suggests that rising profits in a collection of heavily shorted stocks are a much wider phenomenon.
Indeed, most shares in the $ 3 billion Russell 2000RUT index have made huge profits since the end of last year, outperforming the rest of their peers.
The top 5% that have fallen the most have doubled since the end of October, and the next 5% that have been cut the shortest are better than the stocks that have fallen the least.
“This top segment has now broken away from the next one, suggesting that the level of short-term interest rates itself is the target for much of this activity,” said Andrew Lapthorne, head of quantitative equity research at Société Générale, in a Wednesday note said.
See: It’s not just GameStop: here are some other heavily shorted stocks that are shooting higher
Analysts have suggested retailers coming together in platforms like Reddit and Discord are actively looking for high-interest short-term stocks to create a short-term push. The hope was that short sellers would be hit with penalty losses to cover their shorts and buy back the shares, thus accelerating profits.
The S&P 500 SPX,
the Dow Jones Industrial Average DJIA,
and Nasdaq Composite COMP,
progressing this week with a loss of 2%.
Read: Is trading in GameStop and AMC a big risk? Analysts weigh in