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Will GameStop Stop The Bull Market

“In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.” -Warren Buffett

The incredible action from some of the most heavily shorted names has investors everywhere wondering what it all means? GameStop (GME) specifically has taken the country’s imagination by storm, as the stock started the year under $20 per share and this morning nearly hit $500.

Please note, we aren’t allowed to discuss individual equities, and in no way are we recommending any stocks in this blog, but from a bigger perspective, what is happening here? Basically, individual investors are using message boards like Reddit to find some of the most shorted stocks, then they all pile in at the same time, forcing large institutions to cover their shorts, and thus producing massive buying pressure.

LPL Research doesn’t think these parabolic moves reflect an overall unhealthy market, but institutions covering shorts at sizable losses may be removing capital from some big cap names. “While these developments could be another sign of excessive optimism in certain segments of the equity markets, we do not believe they represent a sign of a broader market bubble or indicate a major correction is forthcoming,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Don’t forget, overall market breadth is extremely healthy and the credit markets are functioning just fine—we don’t see a repeat of 1999 like some are claiming.”

Lastly, as shown in the LPL Chart of the Day, after a 72% rally in the S&P 500 Index (and more in small caps and the Nasdaq), maybe it is simply time for a break. After all, the current bull market has tracked almost perfectly the start of the 1982 and 2009 bull markets thus far, and both of those took a break for a few months starting around this point in the cycle.

Previous Bull Markets Had Choppy Times Ahead

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

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All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

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