1660891516 Resurgence of meme action warns of stock market warming

Resurgence of meme action warns of stock market warming

Resurgence of meme action warns of stock market warming

Meme actions strike back. These forgotten stocks, catapulted through 2020 and 2021 by the interest of thousands of retail investors, have rallied again over the past month. This has raised concerns from some analysts, who see it as a symptom of the stock market running too strong unaware of the risk of a recession.

If in the first phase of meme actions the main symbol was the video game chain game stopthis time the new star is Bed Bath & Beyond, an American company with stores selling furniture and household products. In August, its shares are up 360%, going from $5 to $23.

Shares gained momentum this week as RC Ventures, Gamestop chairman Ryan Cohen invested in Bed Bath & Beyond. The move drew a legion of retailers who are following in Cohen’s footsteps. Last Friday shares were up 23%, Monday up 24%, Tuesday up 29%, Wednesday up more than 20%… the stock meme fever was back.

This name is due to internet memes, jokes shared by millions of users on social networks and also shared by users of various forums specialized in the stock market such as WallstreetsBets on the Reddit platform.

What do these types of companies have in common?

  • retailers. The concept of meme actions is very general. It includes giants like Tesla to almost forgotten companies like Nokia. One of the common threads is that they have armies of small individual investors who will defend a particular stock tooth and nail and who are unafraid to stand up to the big bear funds on Wall Street.
  • controversy. In almost all cases, these are companies whose future earnings forecasts are highly controversial. For some (the bears), the stock price doesn’t justify gains that will end up below market expectations. For insiders, these are companies that can do much better than the big funds are expecting.
  • shorts. Because of the way they invest, bearish managers can lose a lot more money than they invested betting against a stock. Foreros know that if a security’s price skyrockets, they will inflict heavy losses on the bears. And they exploit this weakness.

Such exacerbated movement in small value causes bright winners and resounding losers. Among the first, 20-year-old college student Jake Freeman stands out. This young mathematician has made $110 million by investing in Bed Bath & Beyond stocks. It must also be said that he was not just any student. Freeman invested $25 million in the company, with money from friends and family. The young man has been investing in the stock market for years with his uncle, a former director of a large pharmaceutical company.

On the other hand, Those who have suffered the most from Bed Bath & Beyond’s surge are the investment firms that have been holding short bets on the company. These types of investors use financial instruments to be able to make money when a stock falls. The bathroom furniture chain was among those making the most money from short bets. Its incredible re-rating has seen these bearish managers lose $2,100 million. The script is exactly the same as that lived with Gamestop a year and a half ago.

At that time, in addition to Gamestop, investors also used internet forums and revived stocks such as the AMC cinema chain or the mobile phone manufacturer Blackberry. Bearish investors weren’t just lured by Bed Bath & Beyond. They also have 18% of AMC and 23% of Gamestop, and they’re already suffering from the increases.

After a few months of euphoria, the change in monetary policy with interest rate hikes to curb inflation hit the stock markets hard. Most meme actions went very badly. However, and in tandem with the recovery in the major indices, there have been several stocks in this profile that have posted strong gains over the past month. AMC skyrockets by more than 30%, Tesla by more than 25%, Blackberry by 16% and Nokia by 11%.

One of the latest companies to become a meme is Hong Kong financial firm AMTD Digital. In the first days of August, its price tripled. The move has been so extreme and its capitalization so low that even the most seasoned bear investors are afraid to enter the value.