NEW YORK: As the trading frenzy in GameStop Corp shares and other social media favorites recedes, investors are eyeing signs of potential market stress that could weigh on broader stock performance in coming weeks.
Some investors, however, worry that the wild swings in GameStop and other"meme stocks" may have exacerbated concerns over market volatility and elevated valuations that could make market participants more risk-averse. The S&P 500 stands near its highest forward price-to-earnings ratio in about two decades after rallying 74per cent from its March lows.
Liquidity in futures on the S&P 500 dried up as market makers and other investors sought to reduce risk during the GameStop surge, according to BofA analysts. Earlier this week"market fragility," as measured by the bank, stood at its highest level since March 2020, making U.S. equities exceptionally vulnerable to sudden market shocks, the firm said.
The VIX has since reverted to its lowest level since early December as U.S. equities have rallied this week. Even so,"I wouldn't say we're completely past it yet," Kaiser said.