Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

A scrap metal merchant and an electric vehicle maker that has sold just four cars top the list of so-called “penny” stocks that are out-trading the likes of Tesla and Apple, prompting some analysts to warn that markets are becoming overheated.

Seven of the top 10 most traded US equities in May, as measured by the number of shares bought and sold, are penny stocks worth less than $1, according to Cboe Global Markets. None of the companies are profitable.

The huge volumes in so many little-known stocks suggest a renewed appetite among retail investors for cheap names in which they believe they can quickly make a lot of money.

“When markets get frothy, the speculative froth often hits penny stocks as well — this is a classic sign of market peaks,” said James Angel, a finance professor at Georgetown University.

“Penny stocks tend to be extremely volatile, so you can make or lose a ton of money very quickly,” he added. “That appeals to the speculative urge.”

The frenetic trading comes after a strong rally in US blue-chips over the past seven months, with tech stocks reaching a new record high this week, although on Friday the benchmark S&P 500 index recovered from early lows, but still suffered its first weekly decline in more than a month.

Scrap metal merchant Greenwave Technology Solutions, whose website proclaims “scrap is the new precious metal”, topped the leaderboard for May. It has 588mn shares outstanding, and a daily average of 510mn shares were traded during the month, according to Cboe Global Markets data.

Over that time, its market capitalisation swung between $4mn and $159mn and the value of its shares from 4 cents to 16 cents. The company did not respond to a request for comment.

The only large-cap company to make the top 10 most-traded was Tesla, a regular favourite among active traders. 

While, in value terms, trading in penny stocks is a tiny fraction of the turnover of mega-caps, investors’ increased interest has coincided with a resurgence in so-called “meme” stocks such as retailer GameStop and cinema chain AMC, which benefited from frenzied retail investor interest in 2021. 

AMC was the sixth most-traded US stock in May with volumes more than 7 times their recent average.

“Penny stocks are not the same as the meme stock phenomenon, but let’s say they rhyme. It’s people willing to put fundamentals aside and chase returns,” said Steve Sosnick, chief market strategist at retail broker Interactive Brokers. 

Sosnick’s own weekly scan of the most-traded stocks on Interactive Brokers’ platform has recently thrown up several lesser-known microcap companies.

“It’s emblematic of what I consider to have become a very frothy market,” he added.

Stocks that trade under $1 for a certain period are at risk of being delisted by exchanges and, for that reason, institutional investors tend not to touch them.

The rise in volumes has reawakened concerns about the impact of their financing methods on shareholders as well as the rules that allow them to remain listed. 

Several of the most traded stocks by volume in May have sold new shares recently. The deals, typically in the form of bonds that convert into stock at a discount to the market price, dilute existing shareholders and swell trading volumes when the new shares are resold, which often happens quickly.

Electric vehicle maker Faraday Future Intelligent Electric was the second-most-traded stock in May. Its 2023 accounts, filed this week after a delay due to staffing issues, showed sales of four cars and leases for a further six since a long-delayed launch last year. They also contained a warning that “it will likely file for bankruptcy protection if it is unable to access additional capital”.

Several posts on social media platform Reddit focused on the wild swings revealed in Faraday’s share count. This has soared from 57mn in November to 1.4bn by February, when it did a so-called “reverse split”, swapping three existing shares for one new one. Its latest filing shows 440mn shares outstanding.

Reverse splits have become a common tool for sub-dollar companies as a way of boosting share prices and warding off the threat of delisting. There are 471 companies currently with shares trading under $1 in the US, according to S&P Global Market Intelligence data, up from 125 a year ago.

More than 70 reverse splits have been announced so far this year, according to data provider Wall Street Horizon. The number of such share swaps roughly doubled in 2023 to 219 compared with the previous year despite a major rally in stock markets after a tough 2022.

Greenwave announced a 1-for-150 reverse split this week, effective from Monday. Faraday Future, which is still behind with its financial filings and whose shares have halved since it published its 2023 accounts, has appealed against a delisting decision by Nasdaq.

“The company expects its securities to continue to trade on Nasdaq in the normal course during the pendency of the hearing process,” it told the Financial Times.

Chantemekki Fortson, mother of Roger Fortson, a U.S. Air Force senior airman, holds a photo of her son.

Michael A. McCoy

hide caption

toggle caption

Advertisement

Michael A. McCoy

Chantemekki Fortson, mother of Roger Fortson, a U.S. Air Force senior airman, holds a photo of her son.

Michael A. McCoy

The Florida deputy who shot and killed 23-year-old Roger Fortson in his home earlier this month has been fired.

In a news release Friday, the Okaloosa County, Fla., Sheriff’s Department said that Deputy Eddie Duran was fired following the completion of an administrative internal affairs investigation amid Fortson’s death, which concluded that Duran’s use of deadly force was not “objectively reasonable” and therefore violated agency policy.

The sheriff’s office said it is “limited in scope” to determine whether Duran violated the agency’s policy.

“This tragic incident should have never occurred,” Okaloosa County Sheriff Eric Aden said in the release. “The objective facts do not support the use of deadly force as an appropriate response to Mr. Fortson’s actions. Mr. Fortson did not commit any crime. By all accounts, he was an exceptional airman and individual.”

Civil rights attorney Ben Crump, who is one of several attorneys representing Fortson’s family, said in a statement Friday that while Duran’s firing is a “step forward,” it is not full justice for Fortson and his family.

“The actions of this deputy were not just negligent, they were criminal,” Crump said.

“Just as we did for Botham Jean, Atatiana Jefferson, and Breonna Taylor, we will continue to fight for full justice and accountability for Roger Fortson, as well as every other innocent Black man and woman gunned down by law enforcement in the presumed safety of their own home,” he added.

Fortson was shot and killed on May 3 during an incident involving the Okaloosa County Sheriff’s Office. According to authorities, the sheriff’s office sent deputies to Fortson’s apartment in response to a disturbance call.

Fortson was alone in his apartment FaceTiming with his girlfriend when the deputy approached his door, according to his family’s lawyers.

In body cam footage of the incident, a deputy is seen knocking on the door and announcing himself as law enforcement. Fortson then appears while holding a gun pointed toward the ground. The deputy, who was later identified as Duran, immediately fired shots multiple times. Fortson later died in the hospital.

Aden, following the shooting, said that Duran reacted in self-defense after encountering an “armed man.” Duran was later put on paid administrative leave, a standard protocol by the sheriff’s department following an investigation and administrative review.

In a recording Crump played during a news conference on May 16, a police dispatch officer is heard saying that the disturbance involved “a male and a female,” information he said came via a fourth-party from the front desk of the apartment complex.

“When you make a mistake, you own up to it,” Crump told reporters. “You don’t try to justify killing a good guy. The Okaloosa Sheriff’s Department needs to own up to this. Tell the truth.”

In an interview with NPR, Fortson’s mother, Chantimekki Fortson, and Brian Barr, another family attorney, questioned the deputy’s training as they demanded more transparency around the case.

“He served his family, he served the country, served his friends,” Barr said. “And it’s just such a tragedy, from all angles that — living this life of service doing what he was told to do — he was killed because he opened the door.”

Chantimekki told NPR that her son’s death has deeply affected her family in many ways — including, she said, how his nieces and nephews now react to the presence of police.

“When my grandkids see the police, they literally start vomiting,” she said. “I’ve taught them to respect the police because of the chaos that goes on and the fact that they get sick to their stomach, it’s crazy.”

An investigation led by Florida’s Department of Law Enforcement is still ongoing. The state attorney’s office will determine if any further action is taken.

NPR’s Emma Bowman contributed to this report.

Stay informed with free updates

Simply sign up to the US-China relations myFT Digest — delivered directly to your inbox.

US defence secretary Lloyd Austin accused China of dangerously harassing the Philippines, in a speech to Indo-Pacific defence officials that stressed Washington’s steadfast commitment to the region’s security.

Speaking at the Shangri-La Dialogue defence forum in Singapore, Austin pointed to China’s aggressive acts towards the Philippines, which have included the use of water cannons to try to block resupply missions at the Second Thomas Shoal, a disputed reef.

“The harassment that the Philippines has faced is dangerous — plain and simple,” Austin said. He spoke a day after Filipino President Ferdinand Marcos Jr warned the annual defence forum that China was engaging in “illegal, coercive [and] aggressive” activity towards his country.

“President Marcos spoke eloquently last night about the rule of law in the South China Sea. And he’s right,” Austin said. “Every country, large or small, has the right to enjoy its own maritime resources and to freely sail and operate wherever international law allows.”

Austin’s comments came one day after his first meeting with a Chinese defence minister since late 2022. The Pentagon chief said he had held a “frank discussion” with Dong Jun, who was named Beijing’s defence minister in December.

Marcos on Friday told the forum that any wilful act by China that killed a Filipino citizen would be very close to “an act of war”. The US has also told Beijing that the US-Philippines mutual defence treaty applies to the Sierra Madre, a ship grounded on the Second Thomas Shoal inside the Philippines’ exclusive economic zone.

Austin outlined initiatives the US had taken over the past three years to bolster alliances and create mini lateral security arrangements. He said Washington was “deeply committed” to the Indo-Pacific.

“We’re all in. And we’re not going anywhere,” Austin said.

In an earlier exchange at the event, US Indo-Pacific command head Admiral Samuel Paparo rebuked Cui Tiankai, China’s former ambassador to the US, for accusing Washington of sparking tension in the region by forming “blocs” and focusing with its allies on the need to boost deterrence.

“Ambassador, my dear friend, you’re speaking as if all the panellists here want to fight,” Paparo said. “That is absolutely the last thing that we want to do. We are the life insurance policy against fight.”

Austin said the US and its allies in the Indo-Pacific — including Japan, Australia, the Philippines and South Korea — were engineering a historic “convergence” of their defence interests by creating a “set of overlapping and complementary initiatives and institutions” that would boost military co-operation, develop new capabilities and enhance security.