The meme stock phenomenon has defied forecasts of its doom for over two years, even when GameStop's stunning share price increase captured Wall Street's attention.
However, during the market selloff of last year, individual investors who had previously powered meme stock rises seem to have grown more cautious, and shares of the frequently tiny and highly shorted businesses that wear the meme stock name are likely to be traded more sporadically.
A rebound in a group of recently launched meme stocks has already run into trouble as stocks of companies like Tupperware Brands, trucking company Yellow, and American Superconductor Corp. fall from highs touched several weeks ago, during a wider selloff in US equity markets, although a number of these stocks are still significantly higher than they had been earlier this year.
Data coming from JPMorgan shows how rapidly investor moods may change. Individual investors have been one of the main forces behind the moves in meme stock prices. In the most recent week, individual investors sold single-equity for a net 852 million dollars. According to the statistics, they have eliminated all inflows that this category had experienced since the debt ceiling resolution at the end of May during the past four weeks.
The Roundhill MEME ETF, which records the stock performance of a selection of meme companies, is up approximately 38% for the year but is down around 55% from where it first began trading in December of 2021.
Meme stocks have a history of experiencing a rapid spike, usually followed by a quick decline. However, investors are currently less likely to continue with their investments than they used to be in 2021, according to analysts of Vanda Research. They are also investing less money in individual company shares.
This has occasionally led to rallies that are much less exciting than those sen in the early days of the phenomenon. For example, GameStop's share price had increased by over 1,600% in a single month at its closing high on January 27, 2021, according to Vanda's data. At the high point of its initial increase, one-month net retail flows reached almost 460 million dollars.
In comparison, C3ai, which so far this year has profited from investor euphoria about artificial intelligence, garnered a one-month net sum of 285 million dollars in June, while the stock reached a peak that saw it rise 314% year-to-date.
The typical retail portfolio has lost between 20% and 25% of its value from all-time highs, while the S&P 500 has lost 8.3% of its value from its highest point in 2022, according to Marco Iachini, senior vice president of Vanda. Private investors might still be nursing their wounds from the market crash last year.
Retail players take these opportunities more cautiously than they did in '21, and even when they do, they often don't stick with them for as long, according to Iachini.
Naturally, there are some exceptions. According to statistics from Vanda, the stock of Tupperware Brands, which was selling below $1 before the rally, only attracted 32 million dollars in net retail inflows from mid-July to early August. At its highest point, the stock was up 85% from one month ago.
The latest rebound in the stock market, according to Jonathan Krinsky, the chief market technician of BTIG, revealed traders were looking for "lower quality" equities they thought might catch up to those that ahd already skyrocketed.
In spite of the recent hiccup, retail market participation is still high because of the spike in stock trading interest at the time of the pandemic. According to statistics from Vanda, worldwide retail net flow is predicted to come in at 295.62 billion dollars this year, just below the record-breaking 301.36 billion dollars set in 2022.
In addition, institutional investors that wager on share price decreases are paying attention to the most recent group of meme shares, like many others before them.
Few companies, though, have come close to reaching the levels of short interest observed at GameStop, which saw 170% of the company's sales sold short before the end of December 2020 due to the huge demand for shorting the shares, which resulted in those same shares being rented out several times.
Although volumes are much below levels witnessed in 2021, options activity by individual investors remains an element in pushing several meme names upward.
At its highest point, 3.1 million AMC Entertainment options contracts were traded daily on average. Tupperware, on the other hand, attracted slightly under 100,000 each day at its highest point.
