Wall Street was in a foul mood on Tuesday, and major market benchmarks finished the day with substantial losses. The Dow Jones Industrial Average (^DJI +0.24%) was the best performer on the day despite finishing down more than 500 points, while the Nasdaq Composite (^IXIC +0.36%) had much larger losses on a percentage basis that pushed that index into 10% correction territory. The S&P 500 (^GSPC +0.26%) dropped nearly 2%.
|
Index |
Daily Percentage Change (Decline) |
Daily Point Change |
|---|---|---|
|
Dow |
(1.51%) |
(543) |
|
S&P 500 |
(1.84%) |
(86) |
|
Nasdaq |
(2.60%) |
(387) |
Data source: Yahoo! Finance.
Long-term investors weren't all that shocked to see some popular meme stocks take big hits in the downward-moving market. Yet what was more surprising was the fact that global consumer-products giant Unilever (UL 1.39%) saw its stock fall even more than AMC Entertainment Holdings (AMC 3.59%) and GameStop (GME +1.57%). Let's take a closer look at what moved all three of those stocks on Tuesday.
Image source: Getty Images.
Meme stocks on the decline
AMC Entertainment Holdings and GameStop were among the many sizable decliners on the day. AMC finished the day with an 8% drop, while GameStop fell back by nearly 7%.
Neither company had any significant news of its own that would warrant a stock move in either direction. But macroeconomic trends that have favored retail investors in their efforts to trade in meme stocks like these have started to shift. In particular, higher interest rates brought more volatility to the market, and that has tended to make for even more violent moves for meme stocks.
Even with their declines so far this year, some investors still see potential in both GameStop and AMC. In particular, GameStop's long-term turnaround strategy is ambitious, but it's clear that its old business model of physical retail video-game store locations isn't likely to stand up to the test of time. With substantial cash reserves as a result of raising capital, GameStop has the ability to make many strategic moves in its bid to transform itself.
Unfortunately, when markets are going through tough times, highly speculative stocks typically take the brunt of the hit. If the correction continues, then AMC and GameStop could see further downside.
A massive hit for defensive investors
Many investors who avoid meme stocks instead look to the consumer goods industry for more-conservative stock investments. Unilever (UL 1.39%) is the sort of company that would typically be a safe haven on days like today, but its stock plunged 14% as it contemplated a major strategic move.
Unilever has been looking to move into consumer healthcare products lately, and it has made several bids to buy the consumer health division of GlaxoSmithKline (GSK 1.18%). Glaxo has thus far reportedly rejected three separate bids from Unilever, including the latest offer of 50 billion British pounds, or about $68 billion.
Unilever believes that the purchase would fit well with its strategy to expand in health, beauty, and hygiene products. Indeed, the company is looking at potentially boosting its price for a possible fourth bid at Glaxo's business. Yet Glaxo believes that it can get more value for shareholders by splitting off the consumer healthcare arm into its own separately traded business.
The stock price drop shows exactly how much investors don't want Unilever to pursue this course of action. Nevertheless, that's still no guarantee that Unilever execs will heed the message.
