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The rise in meme stock doesn’t appear to be the ominous sign it has been
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Meme stocks are making headlines once again.
Household names that captured investors’ imaginations in 2021 – like GameStop (GME) and AMC Entertainment (AMC) – are increasing (and decreasing, in some cases).
And while the sudden appearance of meme stock volatility was once a contrarian and risk-on warning for stocks in previous years, the 2024 surges appear to be signaling a healthy risk appetite for investing.
In a critical break from previous trading eras, much of the recent volatility in meme stocks is being fueled by news and material fundamentals like earnings, as opposed to Reddit (RDDT) Posts.
In an ode to the “Magnificent Seven” stocks that have captured investors’ imaginations — and sometimes tested their patience — we’ve selected seven well-known, retail-oriented names that, at one time or another, have been designated meme stocks in the spirit of the prevailing zeitgeist.
Not surprisingly, the top of the list features the big two, GameStop and AMC. To these we add: Carvana (CVNA), Beyond Meat (PORND), Kodak (KODK), Palantir (PLTR) and Coinbase (COIN).
To see the volatility clusters in these seven names, we measure the last quarter’s volatility and aggregate any large moves (at least three standard deviations or more, to be precise), both up and down, for all seven names in one five-day rolling window.
The series high is 14 and was observed on January 28, 2021 – the height of the GameStop frenzy.
When these meme stock signals are overlaid on a chart of the S&P 500, they can sometimes appear to presciently warn of an impending general market reversal.
This was the case during the 2022 bear market and the start of the next bull market (highlighted by the red square), when meme volatility preceded four general market recessions.
During this period, when meme stocks soared and made headlines, it was simply a matter of the laggards catching up. The new long positions were quickly met with a sharp reversal that punished bearish buyers.
In contrast, since the October 2023 lows, volatility signals do not appear to have predictive value on the overall market. We could happily conclude that this is simply a risk-on bull market, in which a rising market tide also brings meme stocks to the surface.
If your portfolio is booming this year, you might not need seven meme stocks to know the market is healthy.
Basing a stock’s performance on earnings and fundamentals rather than, well, memes means that quarterly results can actually matter. Which Palantir investors, seeing shares fall 14% on Tuesday after Monday’s resultsI learned the hard way.
The story continues
And now, on Wednesday, two key players step forward to deliver more meme-centric quarterly results: Robinhood, the movement’s original accelerator-turned-villain, and blue-chip meme stock AMC. They follow not just Palantir, but perhaps the original source of the entire meme movement – Reddit, which was publicized for the first time as a public company on Tuesday.
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