They’re baaack.
The stock market is seeing a serious resurgence of popular meme stocks like GameStop and AMC, reminiscent of the bullish trends that rocked the market (and pop culture) in 2021. Once again, these companies’ share prices are soaring due to social media hype rather than traditional indicators such as growth and earnings.
Tuesday marked another day of significant gains for several of these meme stocks, continuing the momentum from GameStop’s staggering 72% surge the day before. This trend may fluctuate, but it shows that the unmistakable influence of online communities in shaping market dynamics is here to stay.
What are “meme stocks”?
Meme stocks are stocks that see very fast price fluctuations based on social media hype, instead of traditional financial metrics. They get their momentum through widespread online attention — like viral memes and discussions on platforms like Reddit — rather than through traditional market analysis.
The GameStop and AMC meme stock frenzy of early 2021 marked a significant moment in financial history, shedding light on the influence of retail investors and the reality of market speculation. Here are 3 insights to take from this remarkable (and continuing) phenomenon, which show its lasting influence:
1. “Regular folks” can still influence the stock market dramatically
The recent meme stock rally demonstrated the rising influence of retail investors, particularly those on platforms like Reddit’s WallStreetBets. These regular folks, armed with information and passion, rallied behind stocks like GameStop and AMC, challenging conventional market wisdom and showcasing the power of collective action. Their coordinated efforts disrupted traditional market dynamics and showed how everyday investors can seriously impact stock prices.
2. Short but not sweet
Central to the 2021 saga (and the recent surge) was the concept of a “short squeeze,” where heavily shorted stocks experienced fast price surges due to a sudden rush of buying pressure.
What does it mean to “short” a stock?
Shorting a stock means borrowing shares from a broker and immediately selling them, anticipating that the stock’s price will decline. The goal is to buy back those shares at a lower price, give them back to the broker, and profit from the difference in price. Shorting can be risky, though (i.e., when the stock prices rises instead of falling, losses can mount).
Hedge funds and institutional investors had bet against these stocks, assuming their prices would decline. But that’s where retail investors swooped in: Their coordinated buying, coupled with limited availability of shares for short sellers to cover their positions, led to a dramatic surge in prices. This forced short sellers to buy back shares at inflated prices to limit their losses, further driving up the stock prices…and the loop kept continuing.
3. Regulatory questions and what this all means in the long-run
The GameStop and AMC rally prompted some serious scrutiny from regulators. Questions arose about the role of social media in driving market volatility and the potential for coordinated manipulation. The event sparked debates about market fairness, broker practices, and the need for much greater transparency and investor protection measures. Regulators, including the SEC, faced pressure to address these concerns and rethink existing regulations to adapt to the fast-changing landscape of online trading communities and digital platforms.
While the immediate frenzy surrounding GameStop and AMC may have subsided, the latest action has shown that the movement is still very much beneath the surface. Even more importantly: it proves that in the digital age, investing is for everyone.
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