Explainer-Why are meme stocks rallying again?
2024.06.07 10:35
By Sruthi Shankar and Medha Singh
(Reuters) -GameStop and AMC Entertainment (NYSE:) have again captured retail investors’ attention, reminiscent of “the meme stock frenzy” that gripped Wall Street three years ago, following social media posts from the leading figure behind that rally “Roaring Kitty”.
Here is what you need to know about the recent surge in meme stocks:
ROARING KITTY AND HIS SKETCH
Keith Gill, popularly known among traders as “Roaring Kitty”, shared a series of cryptic posts on social media platform X in May following a three-year gap. One of them included a sketch of a man leaning forward in a chair, a popular meme among gamers that indicates things are getting serious.
Earlier in the week, the online stock influencer posted a screenshot showing a $116 million bet on GameStop (NYSE:)’s shares, and announced on Thursday that he would host a livestream on Friday that was scheduled for 12 p.m. ET (1600 GMT).
With colourful YouTube streams and Reddit posts, Gill made the bull case for GameStop in 2021, helping attract a flood of retail cash into the company.
In Gill’s 2021 testimony to Congress, he denied the notion that he used social media to profit by promoting GameStop to unwitting investors.
GAMESTOP LEADS AGAIN, BUT STAYS CHOPPY
Videogame retailer GameStop has rallied more than 160% so far this year, as of last close. While theatre chain AMC Entertainment also climbed in tandem with other so-called meme stocks, it has since shed gains and is down more than 6% year-to-date.
Retail traders accounted for 11% of the turnover in the videogame retailer between Monday and Tuesday, according to Vanda (NASDAQ:) Research, while being the most trending stock on retail trading social media platform Stocktwits on Friday.
Moves on the stock were choppy in early trading, ahead of the livestream, as the company released its quarterly results ahead of schedule and announced plans to raise more than $3 billion by selling up to 75 million shares.
Other highly shorted stocks such as solar firm SunPower (NASDAQ:) and storage container maker Tupperware (NYSE:) have shed gains made alongside GameStop, and were down 20% and 10%, respectively, so far this year.
WHAT ARE MEME STOCKS?
Meme stocks refer to certain company’s shares that have been boosted by retail investors using trading platforms and social media investment advice.
It burst into the open during 2021 when the COVID-19 lockdowns boosted savings, policy stimulus put cash into people’s pockets and extremely low interest rates pushed investors to the stock market.
A proliferation of zero-fee trading apps also encouraged anyone with a smartphone to dabble in stocks.
Thousands of Reddit users on low-cost trading platforms such as Robinhood (NASDAQ:) banded together to drive up the prices of “meme” stocks, squeezing hedge funds that had taken short positions, or bets against those shares.
HOW IS IT DIFFERENT THIS TIME?
U.S. interest rates are at multi-decade highs following the Federal Reserve’s aggressive efforts to tame inflation and the ‘s gains are concentrated in the shares of a handful of megacap companies.
Many fund managers are also waiting for more commentary from “Roaring Kitty”.
Roundhill Investments last year announced the closure of its exchange-traded fund tracking the performance of meme stocks nearly two years after its launch, putting a nail in the coffin of the popular pandemic-era trade.
