LIVE MARKETS-Meme stock mania is back, but it's different this time
Meme stock mania is resurging, with notable rallies in stocks like Krispy Kreme and GoPro, reminiscent of the 2021 retail trading frenzy. Analysts predict this surge may be short-lived, as retail investors appear more selective. The S&P 500 and Nasdaq have seen slight gains, while speculative trading has increased significantly, reaching levels not seen since the late 1990s and early 2020s. However, many meme stocks are already showing signs of decline, highlighting the risks involved in these trades.
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Euro STOXX 600 index down ~0.3%
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MEME STOCK MANIA IS BACK, BUT IT’S DIFFERENT THIS TIME
Last week’s rally in highly shorted names including Krispy Kreme (DNUT.O) , GoPro (GPRO.O) and Kohl’s (KSS.N) was reminiscent of the 2021 retail trader frenzy on Wall Street, though analysts expect it to be a short-lived burst of buying this time.
“While the market continues to grind higher, there are definitely pockets of speculation. I don’t think it’s rampant at this point, that certainly could change,” said Dave Mazza, CEO of Roundhill Investments.
“Today’s more muted performance shows you that retail is comfortable naming a stock and then moving on, differently than what we saw in the COVID experience.”
One of the first moves in the recent surge was residential real estate platform Opendoor Technologies (OPEN.O) following a bullish post on X.com by EMJ Capital portfolio manager Eric Jackson.
Most of the meme stocks mentioned above are down or just slightly higher in early Monday trading.
Tim Urbanowicz, chief investment strategist at Innovator Capital Management, said that, on average, these rallies add about $8.8 billion in market cap and the gains tend to happen in just 11 days.
However, all of these stocks crashed 20% or more in just one day, showing how risky these trades are for investors and how difficult the trades are to time.
Zeroing in on DNUT, KSS and GPRO, Urbanowicz says the price action tends to peak within 10 days based on historical trends, followed by “smaller waves that could persist for years”.
Goldman Sachs said their indicator of speculative trading has increased sharply during the last few months, reflecting elevated recent share of trading volumes in unprofitable stocks, penny stocks, and stocks with elevated EV/sales multiples.
The gauge is at its highest excluding levels seen during 1998-2001 and 2020-2021, the Wall Street brokerage said in a note dated July 24.
(Shashwat Chauhan)
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