Stock meme resurgence potentially waning
In a nod to the meme stock mania of early 2021, shares of Kohl's, GoPro, and Rocket experienced a surge this week, reminiscent of the GameStop short squeeze.
On Wednesday, GoPro was up 12%, but fell short of its intraday highs, finishing the day 41% higher following a record-breaking trading day the previous Tuesday. Rocket, on the other hand, rose 1.3%, while Krispy Kreme ended the day 4% higher. Notably, the S&P 500 and Nasdaq both hit fresh record highs, with the Dow closing just four points shy of a record.
This sudden rise in these stocks, however, seems to be more of a "flight to crap" than a "flight to quality", as described by financial analyst Sosnick. Unlike the GameStop short squeeze, there were no fundamental reasons driving the shares of Kohl's, GoPro, Krispy Kreme, and Rocket so high, so quickly.
The origin of this phenomenon can be traced back to late 2020 when discussions on Reddit's WallStreetBets forum began to focus on GameStop, a struggling video game retailer with a high level of short interest among hedge funds. Users saw an opportunity to execute a short squeeze by buying up shares, forcing hedge funds to cover their short positions at a loss.
The collective action by users on WallStreetBets and other social media platforms led to a massive surge in GameStop's stock price, with the stock rising from under $20 to an intraday high of $483. This event, known as the GameStop short squeeze, marked a pivotal moment in financial history, showcasing the power of retail investors and social media platforms like Reddit's WallStreetBets community.
The aftermath of the GameStop short squeeze led to investigations by regulators, who examined the role of social media in driving stock prices and the potential for market manipulation. GameStop, meanwhile, underwent significant changes under the leadership of activist investor Ryan Cohen, moving towards an e-commerce model and exploring digital ventures.
The meme stock phenomenon, however, has continued with other stocks, such as AMC and more recently, Kohl's. This trend, fueled by a sense of schadenfreude and a desire to belong during a period of social disconnection, has also seen a resurgence in the crypto market and the quiet comeback of SPACs.
As the market continues to push higher, with the S&P 500 up more than 5% since January 2023, the meme stock frenzy serves as a reminder of the power of retail investors and social media platforms, but also the risks and unpredictability of such trends.
Technology played a significant role in the recent surge of Kohl's, GoPro, and Rocket shares, with social media platforms like Reddit's WallStreetBets serving as a catalyst for the meme stock phenomenon. Despite the short-term gains, the rise of these stocks, reminiscent of the GameStop short squeeze, appears to be more related to investing based on sentiment and schadenfreude rather than sound finance and fundamental reasons.
