The Resurgence of Meme Stocks in the Era of Trump Media
Exploring the ongoing impact of meme stocks in the financial landscape, fueled by the influence of Trump Media. Despite initial perceptions of the meme stock movement as a 2021 phenomenon, its relevance continues to challenge traditional financial narratives. Dive into the dynamics of this market shift, where retail investors on platforms like Robinhood confront established Wall Street players in a modern financial narrative.
Sign up for free to get a version of this story in your inbox through CNN Business' Nightcap newsletter.
The meme stock revolution, often referred to as a craze or frenzy, is usually discussed in the financial press in past tense. This phenomenon took place in 2021 and marked the peak of a euphoria fueled by zero-interest rates. It pitted Robinhood hobbyists against Wall Street's elite, creating a scenario reminiscent of a financial David vs. Goliath situation.
If you're struggling to recall how everything concluded, it's because the story never truly came to an end. Now, the loyal and determined GameStop investors are attempting to reunite and make a comeback.
Recently, one of the key figures behind the GameStop surge in 2021 resurfaced after three years of silence. He posted a meme on X without any words, which his followers saw as a signal to rally behind the stock that gained significant attention back then.
Keith Gill, also known as Roaring Kitty and DeepF—ingValue, is the owner of the account. He made a cryptic post featuring a meme of a man in an office chair, suggesting seriousness. This led to GameStop (GME) shares jumping over 100% and then being halted due to volatility. By the end of Monday, the stock had increased by more than 70%, reaching $30.45 per share.
The meme trend continued the following day, with GameStop seeing another 70% rise. AMC, another popular choice among meme investors, went up by 85%. Tupperware experienced a surge of 35%, while BlackBerry, which is still tradable, saw a 13% increase. Additionally, Beyond Meat, a former favorite on Wall Street facing decreased demand for its plant-based burgers, saw a rise of 27%.
"No fundamental investors are involved in this," said Steve Sosnick, the chief strategist at Interactive Brokers. He explained that the fundamentals didn't add up when the stock was priced at $9 per share, and they still don't make sense at $30 per share. However, for those who have been patiently waiting for the next signal, it has finally arrived.
So why is this happening now?
It is unclear why Gill, who did not respond to requests for comment, decided to make a public appearance this week. However, it is evident that the timing was right for another surge.
This week, another meme stock, Trump Media and Technology Group, which is owned by Donald Trump and oversees Truth Social, brought back memories of the GameStop frenzy in 2021. During that time, a group of amateur traders on Reddit took on Wall Street by targeting traders who had bet against GameStop, AMC, Bed Bath & Beyond, and other companies.
Trump Media attracted a surge in stock trading from Trump supporters and speculative traders. The stock price soared by almost 200% this year, driven more by political support for the former president than by strong financial performance. The stock's value fluctuated wildly, rising and falling rapidly based on daily trends.
In 2021, the meme stock phenomenon emerged due to a unique combination of factors. These included the availability of cheap money during the pandemic, increased social media activity, and the popularity of free trading apps for investing in the stock market.
We may not be as excited as before, but we are still close to all-time highs on the stock market, according to Sosnick.
The meme stock frenzy was reignited with the introduction of Donald Trump's media company in the spring.
Sosnick says, "If I were Roaring Kitty in the crowd, seeing what happened to DJT, it may have made a lot of them think, ‘Oh wait, maybe we can get the band back together."
The water is warm, and day traders may be spoiling for a fight, especially if they’re among the legion who caught the 2021 wave too late.
Michael Pachter, a managing director at Wedbush Securities, explained to me that the current situation is different from the 2021 craze. In the past, we had Goliath-like Melvin Capital, Gabe Plotkin’s hedge fund, which made a big bet shorting GameStop and faced significant losses.
According to Pachter, the key difference now is that the investors shorting the stock are not as determined as Plotkin was. Plotkin had a strong belief in his position but lacked the necessary funds to back it up.
Editor's P/S:
The meme stock resurgence, sparked by the return of Keith Gill, has reignited the frenzy witnessed in 2021. Once again, retail investors are flocking to stocks like GameStop, AMC, and Tupperware, driven by a combination of nostalgia and the allure of potential gains. However, it's crucial to note that these stocks are highly volatile and lack strong fundamentals, making them risky investments.
While the current situation differs from 2021, the underlying factors remain the same: cheap money, social media hype, and the availability of free trading apps. The rise of Trump Media and Technology Group, fueled by political support rather than financial performance, has further contributed to the resurgence. It remains to be seen if this latest meme stock craze will have the same impact as in 2021, but it's a reminder that the stock market is often driven by sentiment rather than fundamentals.
