Skip to main content

GameStop's Stock: What Investors Should Expect in October

GameStop's stock has traditionally had a flat performance during October. What should investors expect this year?

At several points this year, GameStop  (GME) - Get Free Report has been one of the few stocks that have managed to outperform the S&P 500  (SPY) - Get Free Report. Most of the rallies in GME has been due to business-related news.

In 2021, GameStop shares moved inversely to the market — known as negative beta. But this year, GME has tended to follow broaders market trends during periods when investors are taking greater caution.

Today, let's take a look at what to expect from GameStop's stock in October by analyzing its historical average performance.

Figure 1: GameStop's Stock: What Investors Should Expect in October

Figure 1: GameStop's Stock: What Investors Should Expect in October

(Read more from Wall Street Memes: “Eat The Rich”: The GameStop Saga Review. Why Retail Investors Like The Stock)

What Tends to Happen to GME in October?

Since 2007, historical average returns indicate that GameStop's stock tends to plateau during October. See the chart below:

Figure 2: GME average monthly return.

Figure 2: GME average monthly return.

One of the reasons for this flat performance is probably the holiday season, which has a big effect on retailers in general.

Trends show that the market prices of retail stocks usually increase in August and September. That's due largely to anticipation of the holiday shopping season.

Then traders tend to "sell the news" following third-quarter earnings announcements.

Another theory is that stocks in general tend to fall during the pre-holiday season because traders are unloading their holdings to minimize risk when the markets are closed.

When we compare the performance of GameStop with the S&P 500 in October, we can see there's minimal difference:

Figure 3: GME average monthly return vs. S&P 500.

Figure 3: GME average monthly return vs. S&P 500.

However, there is also the so-called "October effect" in the stock market during this period. This phenomenon consists of a period in which stocks tend to decline, usually driven by a psychological effect.

A lot of inventors feel nervous in October because of the great historic market crashes that have occurred in that month — such as the crash of 1929 and Black Monday in 1987.

Is GME a Safe Haven From Market Crashes?

There have been times in the past two years when GameStop's stock traded at a negative beta, or opposite the broader market. This made GameStop stock a potential hedge in the event of a market crash.

However, GameStop's beta has gone from 0.98 to 2.08 so far this year, indicating a positive correlation to market trends.

Figure 4: GME's beta performance in the past 2 years.

Figure 4: GME's beta performance in the past 2 years.

Thus, GameStop's current beta indicates that investors are worried about macro issues such as rising interest rates, high inflation, and the risk of recession.

Could GME's Stock Price Still Go Up?

Because of the peculiarities of GameStop's stock, the answer is definitely yes. GME is majority owned by retail investors and enjoys wide popularity in the media and on social media platforms.

Plus, events such as Chairman Ryan Cohen's purchase of more stock, the stock split in dividend form, and the launch of the GameStop NFT marketplace were largely responsible for boosting GameStop shareholder morale.

However, when Bed Bath & Beyond  (BBBY) - Get Free Report tumbled after Cohen sold off his shares, other meme stocks, including GME, fell as well.

In the short term, there are no specific stock catalysts expected for GME. However, about 18% of the stock is currently being shorted, and borrow fees are almost at 10%. This indicates that there is strong interest among short sellers to continue carrying their positions in GME.

The good news for investors is that GameStop's volatility has been on the decline for the past two quarters.

(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)