Quadruple Witching Day for the market brought all indices into the red.
The stock market indices closed in the red today, with the DOW falling over 500 points, having its worst week since October.
The markets’ movements may be due to comments from Jim Bullard on CNBC. The St. Louis Federal Reserve President mentioned that interest rate hikes might come even sooner than the 2023 estimates from Wednesday’s Fed's report. The Fed is becoming more specific about its strategy to combat the rising inflation, but investors are still uncertain of what the future holds.
Another factor for today’s volatility is the so-called “quadruple witching.” This event is a quarterly occurrence and is aptly named. Four financial contracts for index futures and options and stock futures and options expired today. This is a significant cause of market movement, as more than $818 Billion worth of single stock options contracts expired today. I've never heard of the term before, but thanks to Landon, one of our contributors, I learned about it today. Thanks, Landon!
Gun and ammo stocks see a continued upward rally as ammo shortages continue.
2020 may be over, but the signs of fear and uncertainty still show in the market. Smith and Wesson Brands Inc (SWBI) showed up on the winners and losers page on Stock Card with a more than a 17% jump. It is a company that has thrived throughout the pandemic. Demand for weapons and ammunition has yet to slow down as people flock to stores to make sure of their personal safety and protection. Yesterday’s earnings report showed a 67% increase in sales over last year’s same quarter.
It’s not a surprise that the gun and ammo manufacturer sees a great year. Like many other parts of the economy, the shortage of ammunition has been an issue since last year, and there’s no end in sight. Sturm Ruger & Co Inc (RGR) is also another beneficiary of the ammo shortage. It is an arms manufacturer specializing in rifles, pistols, and revolvers. RGR stock saw roughly a 3% gain today.
Fear is one of the strongest market mover forces, which is why you see a steady upward trend for both stocks.
Despite the recent performance, investing in GRAVITY (GRVY) is a bet on a one-hit-wonder video game studio.
GRAVITY (GRVY) is a video game company made famous for its title series Ragnarok. The Korean-launched MMORPG has since been followed by spin-offs and follow-up versions for several gaming platforms. I noticed it today on Stock Card’s Biggest Losers’ list. The stock took a 9% dip throughout today.
Video game stocks have had an excellent pandemic year. GRAVITY, for example, had more than 20% gain in May alone, after 40% Y-o-Y revenue growth in Q1. Despite the outstanding performance, the biggest red flag for me is the dependence on the Ragnarok brand. GRAVITY has yet to release a new IP, which begs the question: can it retain it's userbase even with a new franchise? A game can only hold so much replayability, so the company must follow up its success with another quality release.
Although GRAVITY may not have attempted to branch out yet, things are looking pretty good for now. The newest game from the studio, Ragnarok X: Next Generation, generated over 2 million pre-registrations leading up to its release. Many video game studios end up being a one-hit-wonder who get acquired by larger studios for their talent. So the stock may be a good fit for a bet in the gaming industry. I prefer to focus on gaming companies with more revenue optionality rather than one franchise.
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