Here’s what to take away from today’s Morning Brief, which you can register to receive every morning in your mailbox accompanied by:
Meme stocks are making headlines again.
The household names that captured investors’ imaginations in 2021 — like GameStop (GME) and AMC Entertainment (AMC) — are rising (and falling, in some cases).
And while the sudden onset of meme stock volatility was once a warning of risk aversion for stocks in years past, the 2024 surges appear to signal a healthy risk appetite for investments.
In a critical departure from previous trading eras, much of the recent volatility in meme stocks is fueled by big news and fundamentals, like earnings, as opposed to Reddit (RDDT) posts.
In an ode to the “Magnificent Seven” who captured investors’ imaginations – and sometimes tested their patience – we’ve selected seven well-known, retail-focused names that at one time or another , were designated as meme stocks in the spirit of the prevailing zeitgeist.
Unsurprisingly, at the top of the list are the big two, GameStop and AMC. To these we add: Carvana (CVNA), Beyond Meat (BYND), Kodak (KODK), Palantir (PLTR) and Coinbase (COIN).
To visualize the volatility clusters of these seven names, we measured the volatility of the past quarter and grouped all significant movements (at least three standard deviations or more to be precise), both up and down, for the seven names over a moving window of five. days.
The series high is 14 and was observed on January 28, 2021 – the peak 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 rally (highlighted by the red square), when the same volatility preceded four downturns in the broader market.
During this period, when meme stocks surged and made headlines, it was simply a case of laggards catching up. New long positions quickly encountered a sharp reversal that penalized bearish buyers.
On the other hand, since the October 2023 lows, volatility signals do not appear to have predictive value on the market in general. One could happily conclude that this is simply a risky bull market in which a rising market tide also lifts meme stocks.
If your portfolio is up this year, you might not need seven meme stocks to tell you the market is healthy.
Basing a stock’s performance on earnings and fundamentals, as opposed to memes, means that quarterly results can actually matter. Palantir investors, seeing the stock fall 14% on Tuesday after Monday’s results, learned the hard way.
And now, on Wednesday, two key players are stepping up to deliver more meme-centric quarterly results: Robinhood, the original accelerator-turned-villain of the movement, and blue-chip meme stock AMC. They follow not only Palantir, but perhaps the original source of the entire meme movement – Reddit, which reported for…
