Explainer: Why are meme stocks rallying again?
07/06/2024 15:16
(Adds details on Gill's livestream, updates recent stock
performance)
By Sruthi Shankar and Medha Singh
June 7 (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 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'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 GME.N 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 AMC.N 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 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
SPWR.O and storage container maker Tupperware TUP.N 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 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, Medha Singh and Shristi Achar A
in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)
((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223
8780; outside U.S. +91 80 6182 2787))