As the world adopts digital trends, many things have changed, including the investing culture of institutions and retail investors. Today, we have stocks such as Gamestop and AMC Entertainment that have surged significantly over the past few months based on the ‘meme’ investing culture.
The trend became famous following the GameStop short squeeze in January 2021, which saw the company’s share price increase by 400% within a week. Before that, the video game retailer had been struggling to keep its financial status healthy, with several hedge funds in Wall Street short selling the stock.
Thanks to the Gen-Z dominated WallStreetBets forum, retail investors came to the rescue of Gamestop, short squeezing the hedge funds who had bet against the stock. The frenzy did not end there; retail investors started jumping into other meme stocks such as AMC Entertainment, now up over 2000% this year.
However, things seem to be taking a different turn in recent weeks. Trading volumes on these meme stocks have been dropping, favouring fundamental instruments such as gold and the Nasdaq 100.
Are Meme stocks heading towards a bubble burst?
While it may still be early to predict the fate of the meme investing culture, the latest figures show a decreased interest by retail investors. On 31 August, AMC Entertainment shares plunged, with the stock’s trading volumes dropping by 68% on European trading platform Capital.com.
This decrease in daily volumes marked a change in investor sentiment from the previous week, where AMC was the top traded stock on Capital.com for three days (between 24 to 26 August 2021). Meanwhile, gold and Nasdaq 100 were the most traded instruments, pushing AMC to third position.
According to Capital.com Chief Market Strategist David Jones, it may take some time before meme stocks reclaim their glory as most investors are currently focused on hedging inflation through long-standing assets such as gold,
It seems unlikely that these meme stocks might be able to repeat the heights seen in June but time will tell. The nagging worry for some investors at the moment is still inflation. This goes some way to explain the activity by our clients this week – Gold was one of the top-traded assets by our clients, traditionally seen as a hedge against inflation and uncertainty.
Similar sentiments have been echoed by ‘The Big Short’ investor Michael Burry who recently said that meme stocks will likely suffer a similar fate to the dot.com and house market bubble. As reported by Barron’s back in June, Burry noted that new money is gradually running out and a bubble burst is imminent,
I don’t know when meme stocks such as this will crash, but we probably do not have to wait too long, as I believe the retail crowd is fully invested in this theme, and Wall Street has jumped on the coattails,
That said, most of the successful meme stocks are still way above their opening year prices. It comes as no surprise that popular investment banks such as the Macquarie Group recently placed a $6 target on the AMC stock price, which is about 80% lower than AMC’s current trading price of $43. However, only time will reveal which side the volatility swings.
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