GameStop stock plunges, but overall stock market delivers gains after Wednesday's losses

GameStop and AMC stocks plunged Thursday morning in the latest twist in a roller coaster ride set off by amateur investors who fueled a massive increase in the shares in a bid to cause big losses for hedge fund managers.

Their shares were down 44% and 57%, respectively, at about 11:37 a.m. amid tremendous volatility.

GameStop was changing hands in the vicinity of $196, while AMC was trading at about $8. At those levels, the stocks had dropped by about $150 and $12 in just over two hours of trading.

Trading in both stocks was temporarily halted in the morning for volatility. Some brokers, including investment app Robinhood, restricted users from buying more shares in GameStop, AMC and other surging companies.

The primary reason for the surge in recent weeks? Smaller investors who have banded together in places like Reddit, under the subreddit r/WallStreetBets.

At the start of 2021, shares of GameStop closed at $17.25 on Jan. 4. Through early Thursday, GameStop shares had surged more than 1,000% this year, compared with just a 1% rise in the S&P 500, the broader benchmark for most mutual funds.

Shares of AMC jumped more than 230% Wednesday as the Twitter trend #SaveAMC spread amid concerns the movie theater chain might file for bankruptcy due to the COVID-19 pandemic keeping moviegoers away.

Investors recoil:Robinhood restricts trades on GameStop stock, AMC stock

Hedge funds vs. retail investors:GameStop stock becomes battle royale

Matthew Lyle, associate professor of accounting information and management at Northwestern University’s Kellogg School of Management, said nothing has changed about GameStop's middling prospects as a retailer.

“If you are lucky enough to be in a long position (holding the stock or a call option on the stock) while the price is increasing, it is obviously an amazing return over a very short period," Lyle said in a written analysis. "But if you get caught holding the position when it is over — historically, it is a rapid and large drop back to a price that is closer to being justified by fundamentals."

The overall stock market was recovering in early trading on Thursday, after falling sharply the day before on lingering worries about long-term economic damage from the pandemic.

The S&P 500 was up 1.8% as of 11:17 a.m. Eastern. The Dow Jones industrial average was up 2% and the Nasdaq composite was up 1.2%.

Investors are also focusing on company earnings. More than 100 companies in the S&P 500 are scheduled to tell investors this week how they fared during the last three months of 2020.

Apple fell 2% after the iPhone maker posted a record quarterly profit, helped by big sales of iPhones and Apple Watches during the holiday season. Investors focused on the fact that Apple was conservative in its full-year outlook for 2021, which the company cited economic uncertainty and the pandemic as part of the reason for the forecast.

Meanwhile. hopes are high for President Joe Biden’s proposed a $1.9 trillion COVID-relief package, but worries are growing the plan might also be scaled back. Adding to caution, the Federal Reserve said Wednesday it would keep its low interest rate policies in place, but it also released a sobering assessment of the gradual recovery ahead.

“Investors will likely focus on the pace of vaccinations around the globe while also keeping an eye on the progress of President Biden’s fiscal rescue plan that may be facing some roadblocks in the U.S. Senate,” Prakash Sakpal and Nicholas Mapa, senior economists at ING, said in a report.

Markets had been meandering near record highs since last week as investors weighed solid corporate earnings results against renewed worries that troubles with COVID-19 vaccine rollouts and the spread of new variants of coronavirus might delay a recovery from the pandemic.

Contributing: AP and USA TODAY's Brett Molina

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.