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Business

GameStop (GME) Q2 2022 earnings

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SAN RAFAEL, CALIFORNIA – DECEMBER 08: Customers enter a GameStop store on December 08, 2021 in San Rafael, California. Video game retailer GameStop will report third quarter earnings today after the closing bell. (Photo by Justin Sullivan/Getty Images)

Justin Sullivan | Getty Images News | Getty Images

GameStop said Wednesday that quarterly sales declined and losses widened, as it burned through cash and inventory swelled.

The video game retailer also disclosed a new partnership with crypto exchange FTX.

Shares of the company rose about 10% in after hours trading.

In the second fiscal quarter ended July 30, the company’s total sales dropped to $1.14 billion from $1.18 billion in the year-ago period. Its losses widened to $108.7 million, or 36 cents per share, compared with a loss of $61.6 million, or 21 cents, a year prior.

GameStop’s results cannot be compared with estimates because too few analysts cover the company. It did not provide a financial outlook and hasn’t provided one since the start of the pandemic.

The brick-and-mortar retailer is trying to adapt its business to a digital world. It’s gotten new leadership, including board chair Ryan Cohen, the founder of Chewy and former activist investor for Bed Bath & Beyond, and CEO Matt Furlong, an Amazon veteran. It’s also looked to new ways to make money, including nonfungible tokens.

But the company has struggled to drive profits, leading it to trim costs and shake up leadership. Last month, it fired chief financial officer Mike Recupero and laid off employees across departments. Accounting chief Diana Jajeh stepped in as the company’s new CFO.

Furlong urged patience on an investor call on Wednesday, saying GameStop must go through a significant transformation to keep up with customers.

“Our path to becoming a more diversified and tech-centric business is one that obviously carries risk and will take time,” he said. “This said, we believe GameStop is a much stronger business than it was 18 months ago.”

GameStop’s new initiatives have come at a high cost. It had $908.9 million in cash and cash equivalents at the end of the quarter — a little more than half of what it had at the end of the year-ago period.

Inventory ballooned to $734.8 million at the close of the quarter. That’s up from $596.4 million at the close of the prior year’s second quarter. The company said in a release that it intentionally bulked up on merchandise to keep up with customer demand and cope with supply chain challenges.

Furlong said on the call that the company had to spend money to modernize its business after years of underinvestment. Among its moves, it hired more than 600 people with talent in areas such as blockchain while it reduced shipping times, so customers get purchases in one to three days.

Changing it up

Now, he said, the company is focused on new priorities: becoming profitable, launching proprietary products and investing in its stores. He said it is lowering costs, too. Expenses decreased by 14% from the first quarter of the year, including some reductions that came from the layoffs.

“We’re going to retain a strong focus on cost containment and continue promoting an ownership mentality across the organization,” he said.

As overall sales fell, he pointed to growth of newer businesses. GameStop launched an NFT marketplace in July, which is open to the public for beta testing. It allows users to connect their own digital asset wallets, including the recently launched GameStop Wallet, so they can buy, sell and trade NFTs for virtual goods.

Sales attributable to collectibles rose from $177.2 million in the prior year’s second quarter to $223.2 million in the most recent one.

NFTs trade on FTX, the retailer’s new partner. “In addition to collaborating with FTX on new ecommerce and online marketing initiatives, GameStop will begin carrying FTX gift cards in select stores,” GameStop said in a release.

FTX was founded by billionaire former Wall Street trader Sam Bankman-Fried, 30. He has become a lender of last resort for crypto firms that have struggled as the assets have declined sharply since late last year.

The agreement with FTX appears to play into GameStop’s status as a meme stock.

The company’s shares have seen sharp fluctuations in value. Over the past year, shares have swung from $19.39 to $63.92. The company’s stock is down about 36% so far this year, bringing the company’s value to $7.31 billion.

Even as the company pivots more to e-commerce, Furlong said that stores remain an important way to connect with customers and to fulfill online orders.

GameStop rolled out a new compensation model for U.S. store leaders, he said. Each store leader can get $21,000 in stock, which vests over three years. They can also get additional pay through company stock on a quarterly basis, depending on their performance.

It is also raising hourly pay for some store employees, but he did not share the specific wage.

Read GameStop’s earnings release here.

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Business

Bed Bath & Beyond soars another 22% premarket to lead meme stocks; AMC and Revlon pull back slightly

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Meme stock Bed Bath & Beyond Inc.
BBBY,
+29.06%
soared another 22% in premarket trade Wednesday, extending its prior-day gains and a winning streak that has seen it gain 59% in the week to date. Tuesday’s rally came even as yet another Wall Street analyst downgraded the stock to sell and warned investors of “unrealistic” valuations. “BBBY has recently gained the attention of retail traders in the Wall Street Bets Reddit forum again, which gained notoriety during the GameStop saga back in January 2021,” B.Riley analyst Susan Anderson wrote in a note to clients. “We believe BBBY is currently trading at unrealistic valuations.” GameStop Corp.
GME,
+6.33%
stock was up 1.3% premarket. Other recent meme stock successes were lower, with AMC Entertainment Holdings Inc.
AMC,
+2.48%
down 0.3% and bankrupt cosmetics company Revlon Inc.
REV,
-0.93%
down 1.5%.

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Business

Employees Scrambled to Keep Robinhood Afloat in January 2021 Meme-Stock Frenzy, House Report Finds

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Robinhood Markets struggled to handle huge volumes of stock trading and sparred with its principal customer, market maker Citadel Securities, during the week in January 2021 when meme stocks exploded, according to a report from the Democratic staff of the House Financial Services Committee.

The committee held hearings in February 2021, questioning the chief executives of Robinhood and Citadel Securities, as well as meme-stock hero Keith Gill and Gabe Plotkin, the hedge-fund manager who lost billions betting against GameStop and other hot stocks. The staff reviewed tens of thousands of pages of internal documents, including pointed communications inside and between the companies.

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Business

Melvin Capital to Close Funds, Return Cash to Investors

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Melvin Capital plans to close its funds and return the cash to its investors, capping a stunning reversal for a firm that lost big on the surge in meme stocks last year and on wagers on growth stocks this year.

In a letter to investors that was reviewed by The Wall Street Journal,

Gabe Plotkin,

Melvin’s founder, wrote that he reached his decision after conferring with Melvin’s board of directors during a monthslong process of reassessing his business.

“The past 17 months has been an incredibly trying time for the firm and you, our investors,” he wrote. “I have given everything I could, but more recently that has not been enough to deliver the returns you should expect. I now recognize that I need to step away from managing external capital.”

Asset bubbles are easy enough to define, but not so simple to identify. WSJ’s Gunjan Banerji explains what bubbles are exactly, how they form and what happens when they burst. Illustration: Jacob Reynolds for The Wall Street Journal

Melvin had been, until last year, one of the top-performing hedge funds—its track record of about 30% a year after fees before 2021 was among the best on Wall Street. It was especially known for its prowess in shorting, or betting against, stocks. In 2015, gains from Melvin’s shorts made up two-thirds of the fund’s 67% returns before fees. Mr. Plotkin bought a minority stake in the National Basketball Association’s Charlotte Hornets, plus a $44 million oceanfront mansion in Miami Beach.

But Melvin’s short positions blew up in January 2021 when individual investors on online forums such as Reddit’s WallStreetBets banded together to push up prices of shares, like those of

GameStop Corp.

, that Melvin was betting against. At the worst point that month, Melvin, which managed $12.5 billion at the start of last year, was hemorrhaging more than $1 billion a day.

While Melvin had made up some of those losses by the end of the year, its focus on fast-growing companies dealt it further setbacks this year as investors soured on such stocks in the face of rising interest rates. Stock pickers also have blamed losses this year on macroeconomic factors like inflation and the war in Ukraine that have hit the market, instead of companies’ own fundamentals. Melvin’s losses widened.

Melvin this year through April had lost 23%, on top of a 39.3% loss in 2021—a huge hole investors expected could take years to make up if Mr. Plotkin didn’t shut down in the interim. Since its start, it has averaged an 11.9% return.

Still, several investors on Wednesday said they were surprised by the decision.

Melvin’s executives as recently as last week had been asking clients for their thoughts on what new fee arrangements seemed fair to them and to Melvin, people familiar with the firm said. Mr. Plotkin in April tried to do away with Melvin’s so-called high-water mark, a standard industry arrangement in which hedge funds don’t collect performance fees until their clients are made whole from prior investment losses. The proposal was part of a broader restructuring effort meant in part to retain and motivate his team, but it met with resistance.

Some investors were so incensed by the proposal they said they planned to redeem all their money at the first opportunity. Mr. Plotkin withdrew his plan days later and apologized to investors, saying he would consult with all of Melvin’s clients as the firm worked to figure out a new path forward.

Investors had been sharing various proposals they thought would be fair, including one by which Mr. Plotkin would keep the current terms until the end of the year and then implement a modified high-water mark that would have let Melvin collect lower performance fees, people familiar with the firm said.

Mr. Plotkin wrote in the letter, “I have worked tirelessly for 20 years to try to be the best I could be and to build and lead an exceptional team of professionals…Being a steward of your capital requires an unrelenting focus. I am proud of what our team has accomplished since 2007.”

He wrote he expected to return nearly all of his clients’ money by late July. Firmwide, Melvin managed $7.8 billion as of April.

Write to Juliet Chung at juliet.chung@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the May 19, 2022, print edition as ‘Melvin To Close Funds, Pay Back Investors.’

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Business

GameStop stock falls after retailer swings to surprise Q4 loss, confirms NFT marketplace plans

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Shares of GameStop Corp.
GME,
+0.97%
fell more than 8% in the extended session Thursday after the specialty retailer swung to a surprise quarterly loss and confirmed plans to launch a marketplace for non-fungible tokens, or NFTs. GameStop said it lost $147.5 million, or $1.94 a share, in the fourth quarter, versus earnings of $80.3 million, or $1.23 a share, in the year-ago period. Revenue rose to $2.25 billion for the quarter, compared with $2.12 billion a year ago, the company said. FactSet consensus, culled from three analysts, called for earnings of 85 cents a share on sales of $2.2 billion for the company. GameStop, part of the meme-stock phenomenon, also said it intends to launch its NFT marketplace by the end of the second quarter, without providing further details. GameStop shares ended the regular trading day up 1%.

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Business

Cathie Wood’s ARK Faces Loyalty Test After Tech-Stock Rout

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Cathie Wood

says the high-risk stocks in the exchange-traded funds sold by ARK Investment Management LLC are so cheap that they will inevitably rise. A surprising number of investors are willing to give it a shot.

Over the past week, with prices in the

ARK Innovation ETF

back at mid-2020 levels, investors have put about $168 million into the fund, boosting its net assets to $11.8 billion, according to FactSet. It is a noteworthy vote of confidence for a fund that has dropped 27% this month and lost half its value over the past year, as its brand of investing in largely unprofitable, untested firms has fallen out of favor.

What happens next at the ARK Innovation fund, which goes by the ticker ARKK, and other risky investments like it will help tell the story of financial markets in 2022. The most speculative assets, ranging from ARK and many of its holdings to so-called meme stocks such as

GameStop Corp.

and

AMC Entertainment Holdings Inc.

to cryptocurrencies like bitcoin, soared during the pandemic thanks to the enormous sums governments and central banks poured into the economy to counter the impact of lockdowns. Now those gains are eroding as the Federal Reserve prepares to begin raising U.S. interest rates as soon as March.

That is prompting a shift of investor behavior, causing a rethink of the sky-high valuations markets had attached to growth stocks. The result is a pullback from the riskiest assets and a repricing of even big technology stocks.

Ms. Wood’s ETFs are at the epicenter of the selloff that has pushed the S&P 500 down 7% and the Nasdaq Composite off 12% just four weeks into 2022. Worst hit have been the shares of technology and biotech firms that generate little to no profit, yet carry high valuations—the kind of companies Ms. Wood’s ARK favors.

Some of the holdings of the ARK Innovation ETF are down more than 50% from their recent highs, including

Spotify Technology SA,

Block Inc.,

Zoom Video Communications Inc.

and

Roku Inc.

Ms. Wood insists the fund’s holdings are due to rebound. “After correcting for nearly 11 months, innovation stocks seem to have entered deep value territory, their valuations a fraction of peak levels,” she wrote in a blog post last month.

SHARE YOUR THOUGHTS

Can the ARK Innovation fund rebound? Join the conversation below.

Larry Carroll,

a financial adviser at advisory firm Wealth Enhancement Group in Rock Hill, S.C., still has some $18 million of client money in ARK Innovation after first buying shares in 2018. The firm manages about $55 billion across portfolios of stocks and bonds, with Mr. Carroll using ARK Innovation as a way of offering some clients exposure to hot tech companies.

Thanks to ARK’s sharp run-up in the early stages of the pandemic, he says he has already pulled more money out of the fund than he originally put in, leaving him comfortable maintaining a significant position in expectation that depressed shares will bounce back.

“The real question has been should we be buying more,” said Mr. Carroll. “I’ve resisted the urge mainly because I don’t think you’ll see ARK and the disruption stocks do well in this environment.”

Funds that beat the market often go through periods in which they lag behind, though the scale of ARK’s ups and downs makes it stand out. Investors have pulled a net $1.4 billion from ARK funds over the past month, the most redemptions of any U.S. ETF issuer, according to data from FactSet. That has pushed net outflows over the past six months to more than $8 billion, more than all the net outflows experienced by other ETF managers over the same period.

Some $16 billion flowed into ARK Innovation from the second quarter of 2020, when the Covid-19 pandemic took hold, through the first quarter of 2021, when the fund’s assets peaked at $28 billion. Investors who have bought in since then have been losing money, said

Vincent Deluard,

director of global macro strategy at

StoneX Group Inc.

Renato Leggi,

a client-portfolio manager at ARK, said some investors have started to agree with Ms. Wood’s assessment over the past week and are buying shares. She said the firm’s strategy requires that investors take a long-term view.

But

Klaus Derendorf,

a 50-year-old business-development executive from Los Angeles, said he sold his ARK Innovation fund shares in November and has boosted his cash holdings after losing about 20% in the fund in less than a year. “I gotta go back to real fundamentals,” he said.

Ms. Wood’s early returns gained her a large following on YouTube, Twitter and other social-media platforms.

Joe Seid,

a 58-year-old sales director from Chicago, bought ARK Innovation shares at the end of 2020, in part because he saw her on TV and his financial adviser flagged the fund as one of the hottest in the market. He sold last year after losing 10% of his investment and now thinks he might have gotten carried away.

“For me, these were way too speculative,” Mr. Seid said. “It didn’t really jibe with more core financial beliefs.”

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Is it time to bail out of the stock market? Wild price swings are shaking the resolve of some investors.

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Is it time to bail out of stocks and bonds? This isn’t the market that investors likely signed up for back in 2021 when shares in GameStop Corp.
GME,
+4.69%
and movie chain AMC Entertainment Holdings
AMC,
+3.72%
were headed to the moon, drawing in droves investing neophytes.

The meme-stock frenzy, the one underpinned by social-media chatter as opposed to fundamentals, has fizzled, at least for now. Highflying technology stocks that could change the course of the world have been under pressure, as benchmark bond yields turn up with the promise of a Federal Reserve that is closing the purse-strings of too-loose monetary policy.

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Economists and market participants are predicting three, four, maybe as many as seven interest-rate increases, of about a 0.25 percentage points each, this year to tackle inflationary pressures that have gotten out of hand.

Read: What to expect from markets in the next six weeks, before the Federal Reserve revamps its easy-money stance

The upshot is that borrowing costs for individuals and companies are going up and the cheap costs of funds that helped to fuel a protracted bull market is going away.

Those factors have contributed partly to one of the ugliest January declines in the history of the technology-heavy Nasdaq Composite Index
COMP,
+3.13%,
which is down nearly 12%, with a single session left in the month, leaving one final attempt to avoid its worst monthly decline since October of 2008, FactSet data show.

Check out: Is the market crashing? No. Here’s what’s happening to stocks, bonds as the Fed aims to end the days of easy money, analysts say

What’s an investor to do?

Jason Katz, senior portfolio manager at UBS Financial Services, says that he’s had an “increased volume of hand-holding calls” from his high-net worth clients.

Katz said he’s telling investors that “it’s not about exiting the market now but making sure you are properly allocated.”

“It’s not a systemic problem we have in [financial markets], it’s a rerating,” of assets that fueled a speculative boom.

“You had a whole constituency of investments that should have never traded to where they did,” Katz said, “Aspirational stocks, meme stocks…all fueled by fiscal and monetary stimulus and this year it is about a great rerating,” of those assets, he said.

Art Hogan, chief market strategist at National Securities Corporation, told MarketWatch that losses come with the territory of investing but investors tend to feel it more acutely when stocks go down.

“It is our nature to feel losses more sharply than we enjoy gains. That is why selloffs always seem much more painful than rallies feel pleasurable,” Hogan said.

It is always important to note the difference between investing and trading. Traders purchase assets for the short term, while investors tend to buy assets with specific goals and time horizons in mind. Traders need to know when to take their losses, and live to trade another day, but investors who usually have time on their side need to invoke different tactics.

That is not to say that investors shouldn’t also be adept enough to cut their losses when the narrative shifts but such decisions should hinge on a change in the overall thesis for owning assets.

Hogan said that investors considering bailing on markets now need to ask themselves a few questions if they are “afraid.”

“’Have my reasons, for investing changed?’”

“’Have my goals changed? Has my time horizon for the money changed?,’” he said.

“Most importantly, ask yourself the question: ‘Am I skillful enough to get back into the market after the average drawdown has occurred,’” he said. “They certainly, don’t ring a bell at the [stock market] bottom,” Hogan said.

Data from the Schwab Center for Financial Research, examining a group of hypothetical investors over a 20-year time period, also supports the idea that being out of stocks, and in cash, for example, is unlikely to outperform investing in equities, even if investors were badly timing the market.

“The best course of action for most of us is to create an appropriate plan and take action on that plan as soon as possible. It’s nearly impossible to accurately identify market bottoms on a regular basis,” according to findings from Schwab’s research.

To be sure, the market going forward is likely to be tough sledding for investors, with some speculating about the possibility of a recession. The Russell 2000 index
RUT,
+1.93%
entered a bear market last week, falling at least 20% from its recent peak. And the yields for the 10-year
TMUBMUSD10Y,
1.771%
and 2-year Treasury notes
TMUBMUSD02Y,
1.164%
have compressed, usually viewed as a sign of an impending recession if the yields for shorter dated bonds rise above those for longer maturities.

And the rest of the stock market, looks fragile, even after a Friday flourish into the close, other equity bourses are looking at big monthly losses. Beyond the Nasdaq Composite, the Dow Jones Industrial Average
DJIA,
+1.65%
is down 4.4% so far in January, the S&P 500 index
SPX,
+2.43%
is off 7% thus far in the month and the Russell 2000 index is down 12.3% month to date.

Katz said that he’s advising many of his clients to look for quality stocks. ”

“High-quality growth and tech names have been wearing the black eye for [speculative tech], but “those [quality] stocks are starting to find their footing,” he said.

Indeed, Apple Inc.
AAPL,
+6.98%,
for example, surged 7% on Friday to mark its best percentage gain since July 31, 2020.

Katz also said international, and developing markets are good investments as well as small and midcap stocks. “I would remain long equities here, it’s just the right equities,” the UBS wealth manager said.

That said, wild intra and interday price swings are likely to continue to be a feature of this phase in financial markets, as the economy transitions from the COVID-19 pandemic and toward a regime of higher rates.

But slumps don’t necessarily mean the end of the world.

“Not every pullback becomes a correction, and not every correction becomes a bear…and not every bear becomes a diaster,” Katz said.  

Hogan said that downturns also can be viewed as opportunities.

“Volatility is a feature not a bug, and the price we pay for the long-term higher average returns in the U.S. equity market,” he said.

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Business

Robinhood Shares Fall Premarket After Bigger-Than-Expected Loss

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Robinhood Markets Inc.’s

HOOD -6.45%

stock fell 14% in premarket trading after the brokerage reported a loss of $423 million for the fourth quarter.

The company had an increase in technology and administrative expenses that ate into its results.

The brokerage used by individual investors recorded revenue of $363 million for the October-through-December period, an increase of 14%.

For the year, Robinhood recorded an 89% jump in revenue to $1.82 billion, up from $959 million the previous year. The company’s net loss totaled $3.7 billion for the year.

Robinhood’s results missed analyst expectations. Analysts polled by FactSet expected fourth-quarter revenue of $376 million and a net loss of $225 million.

The brokerage in 2021 experienced momentum in its options and cryptocurrency trading business, as individual investors dabbled in riskier and more speculative trading strategies. But in the fourth quarter, the company said, revenue tied to stock trading fell 35% to $52 million from $80 million.

In contrast, revenue tied to customers’ options trading rose 14% to $163 million.

Robinhood became a darling of the Covid-19 era, as millions of new investors began trying their hand at trading. The brokerage now has 22.7 million customers, it said Thursday, up from 12.5 million in 2020.

The company faces stiff competition. Asset managers such as Fidelity Investments and

BlackRock Inc.

have used their scale to increase profits even while cutting fees. They have also focused on adding products with higher fees.

Robinhood started the first half of 2021 in a strong position as millions of investors entered the market to trade meme stocks such as

GameStop Corp.

and cryptocurrencies such as dogecoin. Yet as the year went on, it was hard to keep the momentum. The company experienced a slowdown in revenue tied to customers’ trading. Revenue tied to cryptocurrency trading was particularly hard hit in the third quarter.

Shiba Inu Coin’s recent surge, and subsequent fall in value, is part of a growing trend of meme coins that are rivaling some of the largest digital tokens in the world. WSJ retail investing reporter Caitlin McCabe explains why investors are pouring money into this meme based cryptocurrency. Photo: Amber Bragdon/Getty Images

The new year hasn’t provided relief, with trading continuing to fall, the company said.

Robinhood lowered its revenue expectations for the first quarter to less than $340 million, which, at the top end would be a 35% decline.

Jason Warnick,

Robinhood’s chief financial officer, said in a call with the media that trading activity has picked up in recent days.

Mr. Warnick said the company is planning to roll out products that focus on longer-term investing. He said the company expects to begin introducing tax-advantaged retirement accounts midyear and that there is an opportunity to expand internationally—particularly in the cryptocurrency space.

The company started rolling out cryptocurrency wallets this month to some customers, he said. The move allows customers to move their crypto holdings in and out of the Robinhood app.

Shares sank in after-hours trading after finishing Thursday at $11.61, down 6.5% from Wednesday’s close. Robinhood’s stock has been punished lately as investors rotate out of growth companies that were popular last year. Based on Thursday’s close, Robinhood has lost 69% from its initial public offering price of $38 a share.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the January 28, 2022, print edition as ‘Robinhood Posts Loss, Sending Stock Into Nose-Dive.’

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Business

Get ready for the climb. Here’s what history says about stock-market returns during Fed rate-hike cycles.

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Bond yields are rising again so far in 2022. The U.S. stock market seems vulnerable to a bona fide correction. But what can you really tell from a mere two weeks into a new year? Not much and quite a lot.

One thing feels assured: the days of making easy money are over in the pandemic era. Benchmark interest rates are headed higher and bond yields, which have been anchored at historically low levels, are destined to rise in tandem.

Read: Weekend reads: How to invest amid higher inflation and as interest rates rise

It seemed as if Federal Reserve members couldn’t make that point any clearer this past week, ahead of the traditional media blackout that precedes the central bank’s first policy meeting of the year on Jan. 25-26.

The U.S. consumer-price and producer-price index releases this week have only cemented the market’s expectations of a more aggressive or hawkish monetary policy from the Fed.

The only real question is how many interest-rate increases will the Federal Open Market Committee dole out in 2022. JPMorgan Chase & Co.
JPM,
-6.15%
CEO Jamie Dimon intimated that seven might be the number to beat, with market-based projections pointing to the potential for three increases to the federal funds rate in the coming months.

Check out: Here’s how the Federal Reserve may shrink its $8.77 trillion balance sheet to combat high inflation

Meanwhile, yields for the 10-year Treasury note yielded 1.771% Friday afternoon, which means that yields have climbed by about 26 basis points in the first 10 trading days to start a calendar year, which would be the briskest such rise since 1992, according to Dow Jones Market Data. Back 30 years ago, the 10-year rose 32 basis points to around 7% to start that year.

The 2-year note
TMUBMUSD02Y,
0.960%,
which tends to be more sensitive to the Fed’s interest rate moves, is knocking on the door of 1%, up 24 basis points so far this year, FactSet data show.

But do interest rate increases translate into a weaker stock market?

As it turns out, during so-called rate-hike cycles, which we seem set to enter into as early as March, the market tends to perform strongly, not poorly.

In fact, during a Fed rate-hike cycle the average return for the Dow Jones Industrial Average
DJIA,
-0.56%
is nearly 55%, that of the S&P 500
SPX,
+0.08%
is a gain of 62.9% and the Nasdaq Composite
COMP,
+0.59%
has averaged a positive return of 102.7%, according to Dow Jones, using data going back to 1989 (see attached table). Fed interest rate cuts, perhaps unsurprisingly, also yield strong gains, with the Dow up 23%, the S&P 500 gaining 21% and the Nasdaq rising 32%, on average during a Fed rate hike cycle.

Dow Jones Market Data

Interest rate cuts tend to occur during periods when the economy is weak and rate hikes when the economy is viewed as too hot by some measure, which may account for the disparity in stock market performance during periods when interest-rate reductions occur.

To be sure, it is harder to see the market producing outperformance during a period in which the economy experiences 1970s-style inflation. Right now, it feels unlikely that bullish investors will get a whiff of double-digit returns based on the way stocks are shaping up so far in 2022. The Dow is down 1.2%, the S&P 500 is off 2.2%, while the Nasdaq Composite is down a whopping 4.8% thus far in January.

Read: Worried about a bubble? Why you should overweight U.S. equities this year, according to Goldman

What’s working?

So far this year, winning stock market trades have been in energy, with the S&P 500’s energy sector
SP500.10,
+2.44%

XLE,
+2.35%
looking at a 16.4% advance so far in 2022, while financials
SP500.40,
-1.01%

XLF,
-1.04%
are running a distant second, up 4.4%. The other nine sectors of the S&P 500 are either flat or lower.

Meanwhile, value themes are making a more pronounced comeback, eking out a 0.1% weekly gain last week, as measured by the iShares S&P 500 Value ETF
IVE,
-0.14%,
but month to date the return is 1.2%.

See: These 3 ETFs let you play the hot semiconductor sector, where Nvidia, Micron, AMD and others are growing sales rapidly

What’s not working?

Growth factors are getting hammered thus far as bond yields rise because a rapid rise in yields makes their future cash flows less valuable. Higher interest rates also hinder technology companies’ ability to fund stock buy backs. The popular iShares S&P 500 Growth ETF
IVW,
+0.28%
is down 0.6% on the week and down 5.1% in January so far.

What’s really not working?

Biotech stocks are getting shellacked, with the iShares Biotechnology ETF
IBB,
+0.65%
down 1.1% on the week and 9% on the month so far.

And a popular retail-oriented ETF, the SPDR S&P Retail ETF
XRT,
-2.10%
tumbled 4.1% last week, contributing to a 7.4% decline in the month to date.

And Cathie Wood’s flagship ARK Innovation ETF
ARKK,
+0.33%
finished the week down nearly 5% for a 15.2% decline in the first two weeks of January. Other funds in the complex, including ARK Genomic Revolution ETF
ARKG,
+1.04%
and ARK Fintech Innovation ETF
ARKF,
-0.99%
are similarly woebegone.

And popular meme names also are getting hammered, with GameStop Corp.
GME,
-4.76%
down 17% last week and off over 21% in January, while AMC Entertainment Holdings
AMC,
-0.44%
sank nearly 11% on the week and more than 24% in the month to date.

Gray swan?

MarketWatch’s Bill Watts writes that fears of a Russian invasion of Ukraine are on the rise, and prompting analysts and traders to weigh the potential financial-market shock waves. Here’s what his reporting says about geopolitical risk factors and their longer-term impact on markets.

Week ahead

U.S. markets are closed in observance of the Martin Luther King Jr. holiday on Monday.

Read: Is the stock market open on Monday? Here are the trading hours on Martin Luther King Jr. Day

Notable U.S. corporate earnings

(Dow components in bold)
TUESDAY:

Goldman Sachs Group
GS,
-2.52%,
Truist Financial Corp.
TFC,
+0.96%,
Signature Bank
SBNY,
+0.07%,
PNC Financial
PNC,
-1.33%,
J.B. Hunt Transport Services
JBHT,
-1.04%,
Interactive Brokers Group Inc.
IBKR,
-1.22%

WEDNESDAY:

Morgan Stanley
MS,
-3.58%,
Bank of America
BAC,
-1.74%,
U.S. Bancorp.
USB,
+0.09%,
State Street Corp.
STT,
+0.32%,
UnitedHealth Group Inc.
UNH,
+0.27%,
Procter & Gamble
PG,
+0.96%,
Kinder Morgan
KMI,
+1.82%,
Fastenal Co.
FAST,
-2.55%

THURSDAY:

Netflix
NFLX,
+1.25%,
United Airlines Holdings
UAL,
-2.97%,
American Airlines
AAL,
-4.40%,
Baker Hughes
BKR,
+4.53%,
Discover Financial Services
DFS,
-1.44%,
CSX Corp.
CSX,
-0.82%,
Union Pacific Corp.
UNP,
-0.55%,
The Travelers Cos. Inc. TRV, Intuitive Surgical Inc. ISRG, KeyCorp.
KEY,
+1.16%

FRIDAY:

Schlumberger
SLB,
+4.53%,
Huntington Bancshares Inc.
HBAN,
+1.73%

U.S. economic reports

Tuesday

  • Empire State manufacturing index for January due at 8:30 a.m. ET
  • NAHB home builders index for January at 10 a.m.

Wednesday

  • Building permits and starts for December at 8:30 a.m.
  • Philly Fed Index for January at 8:30 a.m.

Thursday

  • Initial jobless claims for the week ended Jan. 15 (and continuing claims for Jan. 8) at 8:30 a.m.
  • Existing home sales for December at 10 a.m.

Friday

Leading economic indicators for December at 10 a.m.

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Business

GameStop Entering NFT and Cryptocurrency Markets as Part of Turnaround Plan

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GameStop Corp.

GME 1.28%

is launching a division to develop a marketplace for nonfungible tokens and establish cryptocurrency partnerships, according to people familiar with its plans, pushing the company into much-hyped areas as it tries to turn around its core videogame business.

The retailer has hired more than 20 people to run the unit, which is building an online hub for buying, selling and trading NFTs of virtual videogame goods such as avatar outfits and weapons, according to the people. The company is asking select game developers and publishers to list NFTs on its marketplace when it launches later this year, the people said.

GameStop also is close to signing partnerships with two crypto companies to share technology and co-invest in the development of games that use blockchain and NFT technology, as well as other NFT-related projects, the people said. The retailer expects to enter into similar agreements with a dozen or more crypto companies and invest tens of millions of dollars in them this year, the people said.

Grapevine, Texas-based GameStop has been working to reset its business after years of losses. The company was at the center of a stock-trading frenzy last year that dramatically boosted its share price, which rode a surge in interest and optimism from individual investors. Many saw potential in GameStop despite the pandemic’s negative impact on foot traffic and even though consumers have been increasingly opting to download and stream games over the internet, rather than buy the kind of hard copies that the company specializes in selling.

Last year, GameStop overhauled its executive team and board of directors, naming activist investor

Ryan Cohen

as chairman. Mr. Cohen, who co-founded online pet-products retailer

Chewy Inc.

and sold it for $3.35 billion in 2017, has been pushing to make GameStop more tech-centric.

The turnaround effort has yet to show significant results in GameStop’s financial performance. In the quarter through October, the company said revenues grew, but its loss widened compared with the same period a year earlier. The revenue growth came from sales of hardware and accessories, while revenue from game software slipped 2%.

“We believe our emphasis on the long term is positioning us to build what will ultimately become a much larger business,” GameStop Chief Executive

Matt Furlong

said on an earnings call with analysts last month. Mr. Furlong, who joined the company last year from

Amazon.com Inc.,

then mentioned that GameStop was exploring business opportunities involving blockchain and NFT technologies.

There are signs some investors are losing patience. GameStop shares have plunged by more than 45% over the past six weeks, though the stock remains far above where it was when investors started piling into GameStop shares a year ago.

Terms like “nonfungible token,” “minting,” “gas fees” and more sound like a foreign language to you? To better understand it—and explain it—WSJ’s Joanna Stern turned her son’s art into an NFT on the Ethereum blockchain. Photo illustration: Jacob Reynolds

Diving into the crypto and NFT space puts GameStop on a rapidly growing list of companies trying to cash in on these nascent and largely unproven technologies. A handful of NFT marketplaces already exist and some feature tokens from game publishers. Earlier this week, a marketplace called OpenSea said it raised $300 million in venture capital and is now valued at $13.3 billion, greater than GameStop’s valuation of close to $10 billion.

The videogame industry is likely to play a major role in the adoption of cryptocurrency, NFTs and blockchain technology, analysts say. Gamers are expected to be among the first to embrace the technologies because they are already spending a lot on virtual goods. Virtual real estate in videogames, as well as videogame collectibles, are a rapidly growing segment of the NFT market.

In recent weeks, some of the industry’s biggest publicly traded videogame companies have launched or announced plans to sell NFTs, including

Ubisoft Entertainment,

Zynga Inc.

and

Square Enix Holdings Co.

Some industry executives and players, though, have expressed concerns about the value of NFTs and developers’ motives for creating them.

By getting into the crypto and NFT space while it is still in its infancy, GameStop hopes to avoid missing out on opportunities to be part of a budding trend as it did with computer-game downloads about a decade ago, the people familiar with its plans said. GameStop tried to get into the streaming of videogames at the time but abandoned the effort. Today, the downloading and streaming of games are rapidly growing trends.

Write to Sarah E. Needleman at sarah.needleman@wsj.com

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