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  • GameStop leapt on a successful Q2 reported late Wednesday.
  • GME shares are trending lower on Thursday due to the macro picture.
  • Losses narrowed from $109 million one year ago to less than $3 million.
  • Revenue rose 2% YoY, and SGA costs were kept to a minimum.

GameStop (GME) stock jumped above $20 initially in Wednesday’s post-market when its second-quarter results were released to great fanfare. The video game retailer cut its ongoing losses down to a smidgin and offered up the possibility of future profits. 

In Thursday’s premarket, however, the weight of a global sell-off in equities is weighing on GME’s share price. NASDAQ 100 futures fell more than 1% in the premarket, and S&P 500 futures are off 0.6%. 

Barclay’s released a client note on Thursday arguing that the global economy is beginning to slow down. Barclay’s stated that 2023’s worldwide economic growth rate of 2.8% would fall to 2.3% next year. A number of European countries, as well as China, have seen their service sectors begin to stall out this week, based on August data. 

“The global economy should slow a little, as the US downshifts from the strong pace of early Q3 to a mild slowdown, though not a material recession,” said Barclay’s report.

GameStop earnings news

GameStop lost $-0.03 per share in adjusted terms, which was 11 cents better than Wall Street consensus. Revenue of $1.16 billion, up 2% YoY, also bested the average forecast by $20 million.

GameStop has been holding on for dear life since covid hit and is finally starting to see real results. Growth in GameStop’s software segment made up for falling sales elsewhere. Software sales of $397 million rose 25.5% YoY. 

Hardware sales, still the largest segment, were flat on an annual basis, while collectible revenue of $170 million declined 24% YoY.

By holding down expenses, GameStop was able to curtail its expected quarterly loss from nearly $109 million one year ago to just under $3 million in the quarter ending in July. This was contributed to by holding Selling, General and Administrative (SGA) costs down. SGA topped 34% of sales one year ago, but GameStop pushed that percentage to below 28% this time around.

“During the first quarter of fiscal 2023, we began the process of exiting our operations in Ireland, with all stores in the region closing in the second quarter of fiscal 2023,” the company said in a statement. “While we expect our cost containment efforts to yield reductions in SG&A expenses in the long term, we have incurred and may continue to incur severance and other non-recurring costs related to these efforts in the short term.”

 

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

GameStop stock forecast

GameStop stock was already trending upward in the lead up to Wednesday earnings announcement. The Moving Average Convergence Divergence (MACD) indicator has crossed over in bullish fashion, and the 9-day Simple Moving Average (SMA) is narrowing its gap with the 21-day SMA. GME has been recovering from a downtrend that began in mid-June and only began to reverse in late August. 

GameStop bulls are gunning for GME to overtake either the $20 or $22 level. Both prices have acted as support before, so they are necessary for overcome in order to prepare for a broader setup. Any success there will lay the groundwork for a run at the $27 to $30 resistance range.

January and March’s support at $15.50 looms below, but investors will hope that those valleys are over and done.

GME daily chart

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