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Illustration: Eniola Odetunde/Axios

There might be times when stock market moves make sense, but this is not one of those times.

Why it matters: High and volatile stock prices, while mostly harmless, reflect the febrile zeitgeist more than they do fundamental valuations.

By the numbers: Shares of cannabis company Canopy Growth closed on Election Day at $20.46 apiece, valuing the company at $7.6 billion.

  • That evening, referendum results came in showing that recreational cannabis had been legalized in Arizona, Montana, New Jersey and South Dakota — a broad range of states, helping lay the groundwork for decriminalization at the federal level.
  • The following day, Wednesday, Canopy's shares dropped as low as $18.32 — down 10.5%.
  • By Friday, however, with no new news, the shares were as high as $24.98 — up 36% in 48 hours.
  • The cannabis rally continued into Monday, because something something coronavirus vaccine, even as Peloton was seeing its valuation slashed by a quarter in a single day.

The market euphoria on Monday was so extreme that hedge fund manager Bill Ackman was able to replicate exactly the same credit default swap bet, at exactly the same prices, that he made in February — the one where he turned $27 million into $2.6 billion in the space of less than a month.

  • The pandemic is much more out of control now than it was in February, and everybody knows how far prices can fall, because we saw them do just that in the spring. Yet Ackman's counterparties don't seem to have learned anything from their February mistake.

Between the lines: A lot of momentum trades got severely unwound on Monday, with moves as large as 15 standard deviations, according to Nomura strategist Charlie McElligott.

  • It was almost certainly a day where fortunes were made and lost at long-short hedge funds. As the Wall Street Journal reports, "value stocks beat expensive growth stocks by the widest margin of any single day since the 1930s."
  • Individual long-term buy-and-hold investors, however, were, as ever, perfectly fine ignoring the market entirely.

Go deeper

Stock market has worst week since October amid Reddit frenzy

Photo: Tiffany Hagler-Geard/Bloomberg via Getty Images

Wall Street had its worst week since October as day traders bid up stocks for GameStop, AMC and others that gained popularity on Reddit.

Details: The S&P 500 fell more than 1.9% on Friday. All of the major averages fell more than 3% this week.

Updated Jan 28, 2021 - Economy & Business

Senate panel to hold hearing after high-flying Reddit stocks cause Wall Street chaos

Major trading platforms including Robinhood, TD Ameritrade and Interactive Brokers are restricting — or cutting off entirely — trading on high-flying stocks like GameStop and AMC Entertainment.

The latest: Senate Banking Committee Chair Sherrod Brown (D-Ohio) announced Thursday that he plans to hold a hearing on "the current state of the stock market" in response to this week's volatility.

Felix Salmon, author of Capital
Jan 29, 2021 - Economy & Business

The unprecedented stock market craziness, in one chart

Data: Bloomberg; Chart: Sara Wise and Andrew Witherspoon/Axios. Note: Stocks limited to companies with a market capitalization of more than $150 million. 

Almost never does a stock trade more than twice its market value in a single day. It never happened in 2001, for instance, and never happened in 2003, and only happened once in 2002.

Driving the news: It has happened 7 times this week already, and 20 times this month. In the past 12 months, it's happened 84 times, which is more than all of the previous occurrences going back to November 1998.