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(Reuters) - The U.S. Securities and Exchange Commission waded into the battle between small investors and Wall Street hedge funds on Friday, warning brokerages and social-media traders it was on alert for any wrongdoing in this week’s roller-coaster trade.
GameStop shares rallied again, awarding retail investors the advantage in the latest round of their week-long slugfest against major financial institutions that had shorted the video game retailer.
The so-called “Reddit rally” has inflated stock prices for GameStop and other previously downtrodden companies that individual investors championed on social media forums such as Reddit’s Wallstreetbets, which has almost 6 million members.
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Stocks on Wall Street tumbled Friday. The three major indexes suffered their worst weekly declines since October as frenzied trading in heavily shorted stocks hurt investor sentiment.
The Dow, S&P 500 and Nasdaq ended Friday roughly 2% lower. For the week, the three indexes each dropped more than 3%. For the month, the Dow & S&P finished in the red.
ClearBridge Investments investment strategist Jeffrey Schulze says the indexes could pull back up to 10% because market sentiment is overly bullish. We thought that positioning was pretty stretched as we came into January. Optimism was off the charts, put-call ratios were at levels last seen in 20 years. You also had record margin positioning. There is a lot of optimism in all of the investor sentiment surveys, so I think the market was due for a bit of a breather, little bit of a consolidation.