Finally, the reality is settling in on Wall Street on Thursday. Stocks took a horrible flip-flop because of mounting concerns about the 2nd wave of novel coronavirus cases. However, the wider market is still rising sharply since March – and some of the major winners, peculiarly enough, have shares of firms that filed for bankruptcy. The supposed FAANG stocks of Big Tech backed to lead the overall comeback of the market.
This is another example of the bizarre surge in the share prices of bankrupt companies. I wrote about that yesterday ICYMI. https://t.co/Tmle7c1sKS
— Paul R. La Monica (@LaMonicaBuzz) June 12, 2020
However, companies such as JCPenney, Diamond Offshore, Pier 1, Hertz, and Whiting Petroleum all enjoyed remarkable pops in the last few weeks before tumbling back to earth in recent some days. According to the statistics from S&P Global Market Intelligence and Investor’s Business Daily, a group of over a dozen bankrupt stocks of firms is up around fifty percent, on average, during the last two weeks. Most of them are still under their all-time high, though.
Moreover, other speculative stocks such as Chesapeake Energy, a natural gas company – that rumored to be on the edge of filing for bankruptcy protection – and Chinese based Luckin Coffee, a firm that deceptively inflated sales and might delisted.
Free Trading may lead to wild bets
An analyst at Bespoke Investment Group said in a report that since Schwab went to zero-dollar commissions, the lower-priced stocks marked as huge outperformers. The analyst of Bespoke stressed that stocks with the minimum share prices – so-called penny stocks that include several companies filed for Chapter 11 – significantly outpaced the market in the last few months.
He adds that it appears like reasonable evidence that smaller business people are playing at least any role in the performance of the market. Statistic from Robintrack, a company that follows traders’ holding patterns using Robinhood, the famous investing app appears to bear out this as well. According to the app, both Luckin and Hertz are amongst the top ten stocks traded on Robinhood in the last month.
Temporary traders also seem to be gambling that all the spur from the Congress and Federal Reserve will help lift the economy – as will hopes that many states, along with cities, are getting back to business normally. Therefore, riskier stocks, the dispute goes, may increase even more significantly.
Chief of investment research at Nationwide, Mark Hackett said in a report that gains drove leadership and forced to reopen and recovery, with fear of missing out. Big gains in firms highlighted it that recently filed for bankruptcy protection and firms with no earnings.
Trading for short-range pops is different from Investing
Some companies, such as Radioshack, American Apparel, and Fairway Barneys, went bankrupt for the second time. It earned them the unlucky nickname of chapter 22 firms. However, traders seemed to bet that the Fed would rescue bankrupt companies. Finally, the central bank is now investing in junk bond ETFs and high-yield bonds. Unexpectedly, the same case is with the bankrupt firms, according to Hussein Sayed, the chief market strategist at FXTM. He added that now Fed committed to keeping the interest rates near zero until 2022 end.