CNN Business/Paul R. La Monica
A single tweet from Elon Musk can send a stock soaring. Traders should beware
Why worry about earnings growth and valuations when you can just plow your money into whatever “stonks” mega-billionaire Elon Musk happens to tweet about?
The Tesla (TSLA) and SpaceX CEO has boosted stocks and cryptocurrencies thanks to musings on his Twitter feed — which currently has more than 47 million followers. That’s raising concerns about whether or not unsophisticated investors risk losing their own money by blindly following Musk.
Investors should be mindful that they risk getting burned if they assume that every cryptic Musk missive is a buy recommendation.
Last month, investors mistook a Musk tweet to “use Signal” — as in the privately held encrypted messaging service — as a reason to buy up shares of Signal Advance (SIGL), a tiny tech company that makes medical detection devices. Its stock promptly sank after the confusion cleared up.
Shares of a Canadian gold miner named Sandstorm (SAND) also briefly popped more than 50% in premarket trading on February 4 after Musk tweeted that “Sandstorm is a masterpiece.”
Musk didn’t elaborate, leading many on Twitter to speculate he may have been referring to the 1999 techno song “Sandstorm” by a DJ named Darude — and not the gold miner. (Even Darude tweeted about it.) The stock then pulled back.
So maybe, just maybe, investors shouldn’t use Musk’s Twitter ramblings as investment advice?
“This is reminiscent of the late 1990s, with a lot of retail interest in the markets. People have to be disciplined about what they own and why they own it,” said Matt Stucky, an equities portfolio manager at Northwestern Mutual Wealth Management Company.
“When stock prices detach from fundamental trends, it’s a cautious signal…Our investments aren’t the ones in the news because of Reddit and other headlines,” he added.
Interactive Brokers chair says financial system came ‘dangerously close’ to failure during GameStop mania
Interactive Brokers chairman Thomas Peterffy told CNBC Wednesday that the U.S. financial system faced greater stress during the GameStop trading frenzy than is generally recognized.
“We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators,” Peterffy said in an interview on “Closing Bell.”
Peterffy’s remarks came one day before the House Financial Services Committee was set to hold a hearing examining the epic short squeeze in GameStop that transpired in late January. Among those set to testify are chief executives of stock-trading app Robinhood and hedge fund Melvin Capital, which had been short shares of GameStop.
Representatives from Interactive Brokers are not set to be a part of Thursday’s hearing.
At the peak of the trading mania, Robinhood, along with other brokerages including Interactive Brokers, placed differing levels of temporary restrictions on GameStop and other speculative stocks, which had become favored by users of forums like Reddit’s WallStreetBets. The moves were met with fierce criticism by retail investors, who contended it put them at disadvantages to institutional investors.
But those affiliated with brokerages, such as Robinhood CEO Vlad Tenev and Peterffy, have repeatedly defended the decisions as being necessary to comply with various capital requirements and protect the financial system in the face of volatile trading activity.
Peterffy, who founded Interactive Brokers more than four decades ago, said Wednesday that the market vulnerabilities stemmed from the fact there was so much short interest in GameStop combined with large amounts of options activity.
Fed officials see economy ‘far from’ where it needs to be, meaning easy policy won’t change soon, minutes show
Federal Open Market Committee members at their most recent gathering reaffirmed that the central bank will be keeping policy loose well into the future, according to meeting minutes released Wednesday.
With the economy continuing to shake off the effects from the Covid-19 pandemic, the committee, which sets monetary policy for the Federal Reserve, kept policy unchanged.
That meant holding benchmark short-term borrowing rates near zero and maintaining the minimum $120 billion of asset purchases each month.
In a discussion over the Fed’s asset purchase program and interest rate policy, the minutes indicated little chance for a change anytime soon.
“Participants noted that economic conditions were currently far from the Committee’s longer-run goals and that the stance for policy would need to remain accommodative until those goals were achieved,” the meeting summary said. “Consequently, all participants supported maintaining the Committee’s current settings and outcome-based guidance for the federal funds rate and the pace of asset purchases.”
Heading into the Jan. 26-27 meeting, investors had been looking for discussion about when the FOMC might start tapering the pace of its bond buying, or quantitative easing. The post-meeting statement made no mention of the talks, and Fed Chairman Jerome Powell said afterward that the central bank likely would keep policy accommodative.