Meme Stocks Soar, Outperforming S&P 500 by 40%: Bull Market or Risky Business?


Meme Stocks Soar, Outperforming S&P 500 by 40%: Bull Market or Risky Business?

Last year was undoubtedly tough for investors, but those who frequented Reddit forums faced even greater challenges. The Roundhill Meme exchange-traded fund, which tracks meme stocks, saw a significant decline in share price from $70 to $25. The COVID-19 bubble also burst for non-fungible tokens (NFTs) and SPACs (blank-cheque IPOs), leaving retail investors with limited options – either hold on for dear life or cut their losses.

However, premature declarations of the death of meme investing may have been hasty. Meme stocks are now surpassing the rest of the market, which has experienced its own surge. In fact, the meme index has risen by nearly 60% this year, outperforming the S&P 500 by around 40 percentage points. Individual holdings have seen even more astounding returns, despite some stocks starting from a low base. SoFi, a fintech firm, has seen its shares double, while Palantir, a software-maker, witnessed a nearly threefold increase in market capitalization. Carvana, a car retailer, has experienced an astonishing 800% surge in stock prices. Some retail investors have gone all-in, investing their entire 401k retirement plans. This undeniable evidence points to a clear bull market.

To some extent, some of these stock rallies can be justified. Redditors view positive news as a catalyst for skyrocketing share prices. Carvana, for example, was on the brink of bankruptcy but managed to avert a crisis by providing additional collateral in exchange for a debt cut. Palantir is capitalizing on the surge in demand for artificial intelligence. Furthermore, a judge in Delaware recently rejected plans that would have diluted shareholders in AMC, an early meme stock.

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Nevertheless, there are instances where the rallies in meme stocks are more difficult to explain. Shares in Bed Bath & Beyond, a defunct retailer, have more than doubled in the past three months, despite their impending worthlessness. The struggling home-goods firm Tupperware saw its shares surge from 60 cents to over $4 in late July. Similarly, bankrupt trucking company Yellow also experienced a significant rise in stock prices in recent weeks.

Can meme investors be solely held accountable for these phenomena? In the case of Tupperware and Yellow, there is little to no discussion about them on Reddit forums. Short-sellers may be the true culprits in these instances, as they need to buy back shares that were sold short to close their positions.

In recent days, the bull market appears to have cooled off slightly. Minor shifts in major indices are now triggering enormous swings in meme stocks. On August 7th, Yellow saw a 25% drop in share prices, while Bed Bath & Beyond witnessed a decline of 7%. While early investors may still be enjoying substantial profits, caution must be exercised. Holding onto these stocks could potentially result in significant losses.

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Frequently Asked Questions (FAQs) Related to the Above News

What are meme stocks?

Meme stocks refer to stocks that have gained popularity and seen significant price increases driven by social media platforms like Reddit. These stocks are often influenced by online communities and their collective buying efforts.

Why have meme stocks gained so much attention?

Meme stocks have gained attention due to their volatile nature and the potential for high returns. Retail investors have flocked to these stocks, hoping to ride the wave of momentum and make substantial profits.

How have meme stocks performed compared to the S&P 500?

Meme stocks have outperformed the S&P 500 by around 40 percentage points this year. The meme index has risen by nearly 60%, showcasing their strong performance in the current market.

Are meme stocks considered a bull market?

Yes, the significant rise in meme stocks, outperforming the broader market, indicates a bull market for these stocks. The surge in prices and positive returns are evidence of this trend.

Why have some meme stocks experienced such dramatic price increases?

Some meme stocks have experienced significant price increases due to positive news catalysts or specific factors related to the company. For example, Carvana averted bankruptcy by providing additional collateral, which led to a surge in its stock price.

Are meme investors solely responsible for the price rallies in meme stocks?

While meme investors play a significant role in the price rallies of meme stocks, there are instances where short-sellers may contribute to these phenomena. In some cases, short-sellers need to buy back shares they previously sold short, leading to price increases.

Are meme stocks a risky investment?

Meme stocks are considered a risky investment due to their unpredictable nature and volatility. While some investors have made substantial profits, holding onto these stocks can result in significant losses, as seen in recent market shifts.

What caution should investors exercise when investing in meme stocks?

Investors should exercise caution when investing in meme stocks, especially considering recent market cooldowns. Minor shifts in major indices can trigger significant swings in meme stocks, potentially leading to substantial losses. Careful evaluation and risk management are crucial in this volatile investment space.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

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