Explainer: Why are meme stocks rallying again?
14/05/2024 17:49
By Sruthi Shankar and Medha Singh
May 14 (Reuters) - GameStop and AMC Entertainment 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 on Sunday 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.
With colorful 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
Videogame retailer GameStop GME.N has rallied more than
139% since Friday close through Tuesday afternoon, set to add
more than $9 billion to its market value. Theatre chain AMC
Entertainment AMC.N has climbed more than 130% following the
two-day rally. The highly shorted shares were set for their best
2-day gains since January 2021. Still, both remain well below
the 2021 highs.
The pair was also the two most traded stocks by retail
investors on Monday, as per J.P. Morgan.
Retail traders also pumped up other highly shorted stocks
including solar firm SunPower Corp SPWR.O , headphones maker
Koss Corp KOSS.O and storage container maker Tupperware Brands
TUP.N , sending them soaring between 24% and 83%.
Retail market order as a percentage of total market volume
increased to 17.5% on May 13 from 14.1% on May 1, J.P.Morgan
data showed.
WHAT ARE MEME STOCKS?
Meme stocks refer to certain company 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 RDDT.N users on low-cost trading
platforms such as Robinhood HOOD.O 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&P 500's .SPX 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.
(Reporting by Sruthi Shankar and Medha Singh in Bengaluru;
Editing by Sriraj Kalluvila)
((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223
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