Cramer: GameStop buying and selling frenzy that most likely isn't sufficiently big to topple the complete inventory market
CNBC's Jim Cramer said Monday he believes the Reddit-sparked trading frenzy on GameStop and a few other stocks is unlikely to sink the broader U.S. stock market.
"I'm trying to steer clear of the idea that this is big enough to topple the market," Cramer said on Squawk on the Street.
Rather, Cramer claimed that the brief bottlenecks at GameStop, AMC Entertainment and others are more of a "regulatory risk than a systemic risk" for investors. He compared it to the flash crash of 2010, when the Dow Jones Industrial Average fell by almost 1,000 points in a matter of minutes and the sharp decline in August 2015 was combined with a large sell-off in the Asian markets.
Wall Street's top three stock benchmarks saw their worst weekly results since October, when the financial industry grappled with the retail craze. GameStop stocks rose 400% last week, despite the Dow, S&P 500 and Nasdaq all falling more than 3%. GameStop, which rose more than 1,330% in 2021, fell in early trading after opening on Monday. The broader stock market rallied higher.
People shouldn't feel like it's the end of the world, however, as GameStop rose sharply last week as the overall market ended January on a downward trend, Cramer said. "That is obviously not true."
Cramer said, "The actual number of companies involved in the squeeze and size" are relatively small. GameStop's market value on Monday morning was around $ 18 billion. AMC's market capitalization was around $ 5 billion. "We have to keep an eye on that," added the Mad Money moderator.
Short selling is a strategy in which an investor sells stocks borrowed in order to buy them back in the future at a lower price. You return the borrowed shares and pocket the price difference – when the share price actually goes down. When the price goes up, as with GameStop, a short seller can try to limit his potential losses by buying the stock at the currently elevated level. They would sell those stocks back at a loss in price.
Despite the brief headlines that made headlines, Cramer said investors shouldn't overlook the strength of some recent corporate earnings reports. For example, Apple achieved quarterly sales of more than $ 100 billion for the first time on Wednesday, but the shares of the iPhone manufacturer withdrew after the report.
Compared to GameStop, AMC, and the other Reddit-powered moving companies, Apple has a market value of over $ 2.2 trillion.
"I think the most important thing … is that people realize that last week's quarters were really good. Let's not forget that," said Cramer. "It's the forest of the trees. There are a few options here."