Why GameStop Stock Is Outperforming the S&P 500 In 2022

The S&P 500 has had the worst first half of a year since 1970. The SPDR S&P 500 ETF Trust  (SPY) , which tracks the index, has fallen more than 20% since the start of 2022.

There are many reasons why the S&P 500 has performed so badly: recession fears, rampant inflation, geopolitical conflicts in Eastern Europe, COVID lockdowns in China, and the ongoing global supply-chain crisis are among the “greatest hits.”

In bear markets, it’s rare to find stocks that perform well. However, even though it has experienced its own share of volatility and loss, so far this year, GameStop‘s  (GME) – Get GameStop Corporation Report stock has managed to outperform the broader market.

Figure 1: Why GameStop Stock Is Outperforming the S&P 500 In 2022

CHRIS HAMILTON

(Read more from the Wall Street Memes: 3 Reasons to Be Bullish on GameStop’s NFT Marketplace)

GameStop’s Stock Catalysts

GameStop’s stock performance in 2022 has been far from stellar. Shares through mid-July are down 4.7%. Still, GME has managed to outperform the S&P 500 by about 15% year-to-date.

Figure 2: GME and SPY performance year-to-date.

Yahoo Finance

As expected, the stock has shown high volatility during the year.

At the beginning of March, GameStop shares reached levels below the $80 amid an unfavorable macro scenario for speculative tech and growth stocks. That led financial experts and institutional investors to point out that meme-stock mania was over.

However, retail investors continued to support GameStop’s stock. In March, GME reached nearly $190 per share, fueled by the announcement that Chairman Ryan Cohen had bought a sizable amount of shares.

By the end of May, the stock was back trading below $100. But the announcement of a stock split sent GameStop’s stock reaching for new highs in June.

More recently, the launch of GameStop’s NFT marketplace contributed positively in July, lifting the stock by the double digits of percent.

GME as a Market-Crash Hedge?

A while back, we explored the possibility of using GameStop’s stock to hedge against market crashes. That was thanks to the stock having a negative beta.

A beta is a coefficient that measures the price behavior of a security compared to the market in general (or some other basket of assets). When the beta is recorded below zero, it implies an inverse correlation to the market.

Companies with a negative beta are quite rare. Usually, they’re found in the mining and precious metals industries, where shares often rise when the market tanks.

During early to mid-2021, GameStop registered a very negative beta, reaching all-time lows below -34 in March 2021. This was because, like other meme stocks, GME’s value was uncorrelated to market fundamentals.

Figure 3: GameStop’s Beta trajectory.

Yahoo Finance

However, a few months later, GameStop returned to trade at a positive beta, with a high correlation to market trends.

Today, GameStop’s beta is at 2, which implies that this time, the stock tends to follow the market. However, its volatility is two times greater than that of the overall market.

So GameStop shouldn’t be used as a market hedge at the moment.

However, analysts usually calculate beta by looking at a five-year period of historical price data.

When looking at GME’s beta over a five-year monthly period, we see that it’s -0.73. That may be one explanation why GameStop has outperformed the S&P 500 so far this year.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)