GameStop’s Stock Surge Is A Far From 2021’s Meme Stock Frenzy

(Bloomberg) – Shares of GameStop Corp. more than doubled without any fundamental news. Short sellers are pressured and retail traders use same-day options to amplify gains in stocks that would otherwise be beaten. Absurd cryptocurrencies adding more than 1,000%.

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That was Monday. But it could easily describe the beginning of 2021, when the meme stock frenzy captured the popular imagination and day traders sent stocks on inexplicable wild rides. However, a closer look at the magnitude and madness of that era shows just how far this latest meme craze needs to go to match the original.

In the first round three years ago, GameStop soared more than 1,000% in just a few days as retail traders took to Reddit Inc.’s Wall Street Bets forum to rally against Wall Street bigwigs who were shorting the stock. Today, these “Reddit Raiders,” once flush with time and money due to pandemic-era stimulus and work policies, are largely back at work and bearing the burden of higher interest rates. Some were late and even with the latest increase, they are running at a loss.

Additionally, traders in the mood to gamble now have a number of betting options. Casinos and racetracks were closed at that time because of Covid, leaving stocks as the main game in town. Since then, gambling has become popular and anyone looking to place a bet can basically get in on the action of any game they want with just a few clicks on their phone.

Professional short sellers have also largely given up on targeting companies with relatively small share floats, worried that the power of social media could fuel pressure. And volumes in short-term options, while still high, are nowhere near the levels seen in 2021.

“They’re always brief, they’re like solar eclipses — they happen and then they disappear over a long period of time and then they happen again,” said Peter Atwater, president of Financial Insights and adjunct professor at William & Mary. “But if you look at them, they always seem to have extreme feelings.”

Monday’s buyout was triggered by a single post on X Sunday night from Keith Gill, the retail icon who goes by the nickname “Roaring Kitty” and drove the original craze before disappearing from social media in June 2021. In less than an hour, GameStop added about $6 billion in market value as traders encouraged Gill’s return to tweeting as a sign that the boom was back. Former meme darling AMC Entertainment Holdings Inc. has recovered more than 80%. And newly listed Reddit rose by as much as 14%. In cryptocurrencies, the Roaring Kitty token is up more than 4,000%.

The story continues

Most moves slowed sharply as the session moved into the afternoon — GameStop closed up 74% — quelling speculation about the start of another meme craze. Here’s a closer look at some financial metrics that explain why:

options

Options volumes have increased in recent weeks, but are nothing like the levels seen in 2021. About 700,000 contracts changed hands on Monday – more than four times last month’s average. The calls led to the movement of a large number of $30 and $34 contracts.

However, during the peak of the meme craze in 2021, millions of contracts were traded in a single session. The most active day of that year – January 22nd – saw 8.5 million contracts change hands.

Mixed orders

One of the drivers of 2021’s madness was that most retail traders still didn’t own GameStop, let alone at higher prices. In January of that year, GameStop was consistently the most purchased stock on trading platforms that cater to individual investors, with buy orders far outpacing sell orders.

On Monday, that was not the case. Although GameStop was the most traded stock on Fidelity’s platform, orders to sell shares nearly mirrored purchases. This indicates that the retail public was selling to each other, rather than being the sole driver of stock gains. Even with the pop, GameStop is far from an intraday spike. The stock would need to more than quadruple from Monday’s close to reach that peak.

Less money to buy shares

When Roaring Kitty and now GameStop CEO Ryan Cohen kicked off the meme craze, interest rates were near historic lows while stock markets — and cryptocurrencies — were soaring while the Federal Reserve and Congress injected trillions of dollars in stimulus aid to prop up the American economy. dominated by recession in the middle of a pandemic.

The previous GameStop saga took center stage three years ago, before the Fed began raising rates in March 2022 at the fastest pace in a generation to cool inflation. Now, the stock market – and the economy – are in a different situation, and retail traders have seen a reversal of fortunes as high borrowing costs have reduced their holdings of risky assets.

This is compounded by the fact that credit card delinquency at smaller banks is reaching the highest rate in 30 years, and that at large banks is at its highest level in a decade. This means that liquidity for retail investors is likely low, and the end of stay-at-home orders indicates that the YOLO crowd is back to work or school and not glued to a trading app.

Memecoin Mania

The vast nature of cryptocurrencies with no inherent value has also absorbed a large portion of retail investors’ money. The meme craze surrounding Gill’s return has spread across the crypto world, as a token created in late January using GameStop’s name, logo and ticker rose more than 1,400% on Monday before paring some of that rise. , according to data from CoinGecko, despite having no affiliation with the company.

So-called memecoins are prone to wild swings based on the tokens’ popularity on social media platforms. Coins, which often trade for fractions of a cent, can experience volume and price increases based on some traders injecting small amounts of money.

Scars of 2021

The 2021 meme stock frenzy that crashed the US stock market and educated some Wall Street professionals did not end well after the 2022 bear market. The YOLO crowd lost all the money made in the meme stock rush, data compiled by JPMorgan Chase & Co. aired in 2022.

So while the group’s activity on Monday is rekindling memories of the rush of 2021, it’s not there yet. Trading orders from retail investors in stocks and exchange-traded funds accounted for 24% of total market volume in the first quarter of 2021, estimates compiled by Bloomberg Intelligence show. That compares to just over 17% in the first quarter of 2024, BI data shows.

—With help from Carly Wanna and Jessica Menton.

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