Meme stocks are rallying again – and that’s bad news for the market

Must read

MÖTLEY CRÜE Appears To Be Teasing A Very Small Club Show

Either Mötley Crüe are big fans of some band that nobody...

R29’s Top Stories Of 2022 Didn’t Shy Away From the Big Issues

It’s list-making season, so obviously we had to get in on the fun. That’s why this week’s R29 Twitch stream, hosted by Entertainment Director...

Meet Sam Conaway, Female Entrepreneur, and Community Builder Empowering Women

Sam Conaway is a female entrepreneur and community builder who has made it her lifes work to empower women. As the co-founder of EmpowHer, Sam...

Republicans Disgrace The House By Voting To Remove Rep. Ilhan Omar From Foreign Affairs Committee

In an act of embarrassing petty partisan retribution, House Republicans...

A young man walks into a GameStop video game store.

A young man walks into a GameStop video game store in San Rafael, California.Justin Sullivan/Getty Images

  • Meme stocks have climbed higher in 2023 as part of a broader rally.

  • A fund that tracks retail traders’ favorites has jumped 60% year-to-date, and recently hit a one-year high.

  • It’s a sign investors are picking stocks based on “animal spirits”, which could be bad news for the market.

Meme stocks are back, and that should be a warning sign to investors that this year’s surprising rally might not last.

The asset class – beloved by posters on Reddit’s Wall Street Bets investing forum, even though it’s made up of companies that are either unprofitable or riddled with debt – has staged a comeback since the start of 2023.

Roundhill’s MEME ETF – a fund launched in 2021 to track some of the market’s most speculative names – hit a one-year high Thursday and has jumped around 60% year-to-date. The benchmark S&P 500 index is up 17% over the same period.

Meanwhile, much-maligned stocks like Carvana, Marathon Digital, and Riot Platforms have all racked up staggering gains between 500% and 700% in 2023, while other Wall Street Bets favorites like GameStop and AMC Entertainment have also edged higher this year.

But the meme-stock resurgence should be raising red flags for even the most bullish of strategists.

In January 2021, Wall Street Bets users piled into GameStop, sending the retailer’s stock price soaring a staggering 3,000% in the space of a month and fueling massive losses for hedge funds that had shorted it.

Shares in AMC, BlackBerry, and the now-delisted Bed Bath & Beyond also enjoyed huge rallies the same month.

With the benefit of hindsight, that meme-stock madness marked the tail-end of years of steady stock-market gains – because just over a year later the Federal Reserve started aggressively raising interest rates, popping the “everything bubble” and plunging equities into a bear market.

BTIG’s Jonathan Krinsky said last week that history could be about to repeat itself, pointing out that the benchmark S&P 500 tends to fall when the gap in performance between meme stocks and the consumer staples sector widens to over 10 percentage points.

(When his research note was published last Tuesday, MEME had jumped 10% in the space of three trading sessions, with SPDR’s Consumer Staples Select Sector Fund down 1.3% over the same period.)

Meanwhile, DataTrek Research co-founder Jessica Rabe said meme stocks’ recent gains signaled the return of “animal spirits“, using a term that the economist John Maynard Keynes coined in 1936 to refer to when people start making financial decisions based on emotion, rather than logic.

Any rally based on FOMO, rather than fundamentals, is unlikely to last – and many of Wall Street’s top banks are already warning that the S&P 500 is unlikely to keep racking up massive gains the rest of the year.

So it might be time for investors to start worrying – because while meme stocks’ gains are a boost for Reddit day traders, they tend to be bad news for everyone else.

Read the original article on Business Insider

More articles

Latest article

Walgreens to close 150 stores across the U.S. as pharmacy chain faces ’emerging challenges’

Pharmacy chain Walgreens plans to close 150 of its locations in the U.S. and 300 more in the United Kingdom.This continues ongoing cost-saving initiatives...

Dow Jones Futures: Stakes Rise For Fed Chief Powell’s Speech After Ugly Market Reversal

Dow Jones futures were little changed after hours, along with S&P 500 futures and Nasdaq futures, with Fed chief Jerome Powell's big Jackson...

The Real Horror Of M3gan Is Her Style

Photo: Slaven Vlasic/Getty Images.By now, you will have been acquainted with M3gan, the creepy robot girl who weirdly dances while dressed impeccably in the...

Empowering Success: Kiya Solutions, LLC Elevates Brands with Impactful Strategies and Influential Reach

In today's digital world, businesses must adapt their marketing strategies to stay ahead. Kiya Solutions, LLC, founded by the visionary Kiaan Vert, has emerged...