New York (CNN Business)Wall Street surged for a second day in a row as GameStop mania appears to be calming down. Reddit's favorite stock fell 60% Tuesday, adding to Monday's sizable losses.
Hedge funds on Wall Street are catching a break from the short squeeze that ensued after retail investors rapidly pushed up the share price of GameStop (GME), AMC (AMC) and other heavily shorted stocks last week.
Investors who had shorted those stocks — betting the prices would fall — lost billions of dollars when the share prices skyrocketed last week, driven up by an army of amateur traders on Reddit. Hedge fund Melvin Capital needed a $2.75 billion bailout to make ends meet.
The fallout of the Reddit frenzy weighed on overall market sentiment last week, as Wall Street sold stocks to make up for their short-bet losses. But with the prices of day traders' favorite shares now falling, more bullish sentiment has returned: the major stock indexes rallied, following international benchmarks higher.
The Dow (INDU) logged its best day since November, climbing 1.6%, or 476 points. The broader S&P 500 (SPX), which recorded its best day since November on Monday, finished 1.4% higher, while the Nasdaq Composite (COMP) rose 1.6%
The small-cap Russell 2000 (RUT) index, which GameStop is part of, rose more than 1%. GameStop's stock is still up 380% this year, having surged more than 1,600% in January.
With the GameStop story on the backburner, investors are back to focusing on earnings season. After today's closing bell, Amazon (AMZN) and Google (GOOGL) are due to report. Both companies are constituents of the S&P and the Nasdaq indexes.
Even silver prices, which retail investors moved onto late last week and Monday, reversed course Tuesday. Silver futures were down more than 9% at $26.63 per ounce at the time of the closing bell.
