UPDATED with broader market movement, closing prices. Shares of AMC Entertainment have skyrocketed 301% on a wild trading day, recovering to levels not seen since long before the coronavirus pandemic.
Broader stocks plunged in one of the market’s worst sessions in months as mixed earnings and frenzied trading sparked concerns of a potential new bubble along. Investors also have had jitters over the pace of the vaccine rollout and the Federal Reserve’s decision to take a wait-and-see approach on the economy.
The Dow Jones Industrial Average slumped 2% to 30,303.17, within sight of the vaunted 30,000-point barrier. The damage was worse on the tech-heavy Nasdaq, which retreated 2.6%.
AMC shares closed at $19.90, their highest point since the heady days of 2018 when domestic box office set an all-time record and power-lunches were still a thing. In the first hour of trading alone, movement of the exhibitor’s stock triggered four “volatility halts,” automated mechanisms designed to limit the risk of flash-crashes.
Reddit and a sprawling new crop of day traders and small investors emboldened during the pandemic have catapulted heavily shorted stocks like GameStop, AMC and a few others to manifold gains. GameStop, the poster child for the phenomenon, has soared to $347.51 from just $17.69 at the start of January. Wall Street pundits fretted about stocks being driven higher by inexperienced retail investors egging each other on via social media and various sub-Reddits.
The #SaveAMC hashtag trended on several online platforms. Apps like Robinhood reported outages as user activity surged and other platforms like TD Ameritrade halted action on AMC and GameStop.
Short positions also are a consideration and often prompt fluctuations in certain stocks. Individual investors, using Reddit and other online platforms, have piled into heavily shorted stocks like AMC, creating “short squeezes” for hedge funds and others betting the other way.
In a statement, the Securities and Exchange Commission said it is on the case. “We are aware of and actively monitoring the ongoing market volatility in the options and equities markets and, consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants,” said Acting Chair Allison Herren Lee and commission officials Pete Driscoll and Christian Sabella.
Other exhibition stocks besides AMC, among them Cinemark, National CineMedia, Marcus Corp. and Imax, also posted gains, and there has been some legitimately upbeat news for the theater business lately that can’t be completely discounted. While delays in the vaccine have meant an extended hibernation for theaters and another wave of release date shuffles, an influx of 200 million vaccine doses by summer has been promised by President Biden. Theaters have recently reopened in a few pockets of the country, including key markets like Chicago.
If AMC’s gains can be sustained, the largest movie theater chain in the world will have a head start on what would be a remarkable comeback. Overall box office revenue plummeted more than 80% in the U.S. in 2020 due to the pandemic and major markets like LA and New York have been closed since last March.
The company, backed by China’s Wanda Group and U.S. private equity firm Silver Lake, has long had a sizable debt load. The debt worries were compounded by revenue completely disappearing in 2020. Liquidity issues have remained a serious concern, with bankruptcy a looming scenario, though the company has shored up more than $900 million in fresh cash and CEO Adam Aron says it has ample liquidity to last through the latter part of 2021.