Meme stocks are rallying again – and that’s bad news for the market

A young man walks into a GameStop video game store in San Rafael, California.Justin Sullivan/Getty Images

Meme stocks have climbed higher in 2023 as part of a broader rally.

A fund that tracks retail traders’ favorites has jumped 60% year-to-date, and recently hit a one-year high.

It’s a sign investors are picking stocks based on “animal spirits”, which could be bad news for the market.

Meme stocks are back, and that should be a warning sign to investors that this year’s surprising rally might not last.

The asset class – beloved by posters on Reddit’s Wall Street Bets investing forum, even though it’s made up of companies that are either unprofitable or riddled with debt – has staged a comeback since the start of 2023.

Roundhill’s MEME ETF – a fund launched in 2021 to track some of the market’s most speculative names – hit a one-year high Thursday and has jumped around 60% year-to-date. The benchmark S&P 500 index is up 17% over the same period.

Meanwhile, much-maligned stocks like Carvana, Marathon Digital, and Riot Platforms have all racked up staggering gains between 500% and 700% in 2023, while other Wall Street Bets favorites like GameStop and AMC Entertainment have also edged higher this year.

But the meme-stock resurgence should be raising red flags for even the most bullish of strategists.

In January 2021, Wall Street Bets users piled into GameStop, sending the retailer’s stock price soaring a staggering 3,000% in the space of a month and fueling massive losses for hedge funds that had shorted it.

Shares in AMC, BlackBerry, and the now-delisted Bed Bath & Beyond also enjoyed huge rallies the same month.

With the benefit of hindsight, that meme-stock madness marked the tail-end of years of steady stock-market gains – because just over a year later the Federal Reserve started aggressively raising interest rates, popping the “everything bubble” and plunging equities into a bear market.

BTIG’s Jonathan Krinsky said last week that history could be about to repeat itself, pointing out that the benchmark S&P 500 tends to fall when the gap in performance…


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