This is the conclusion of today’s Morning Brief, which you can read Log in Delivered to your inbox every morning, along with:
Meme stocks are making headlines again.
Familiar names that captured investors’ imaginations in 2021 – like GameStop (GME) and AMC Entertainment (AMC) – are rising sharply (and in some cases falling).
And while the sudden appearance of meme stock volatility in recent years was once a contrary, risk-off warning for stocks, the rises in 2024 appear to signal healthy risk appetite for investing.
In a critical break from previous trading eras, much of the recent volatility in meme stocks is being fueled by material news and fundamentals like earnings, rather than posts on Reddit (RDDT).
In an ode to the “Magnificent Seven” stocks that have captured investors’ imaginations – and at times tested their patience – we’ve picked seven retail-focused, household names that have been dubbed meme stocks at some point in that spirit prevailing zeitgeist.
Not surprisingly, at the top of the list are the big two: GameStop and AMC. There are also: Carvana (CVNA), Beyond Meat (BYND), Kodak (KODK), Palantir (PLTR) and Coinbase (COIN).
To see the volatility clusters in these seven names, we measured volatility over the last quarter and included any large moves (at least three standard deviations or more, to be precise) both up and down for all seven names over a sliding time window of five days in total.
The high in the series is 14 and was observed on January 28, 2021 – the height of the GameStop frenzy.
When these meme stock signals are overlaid on a chart of the S&P 500, they can sometimes appear as if they are prescient warning of an impending overall market reversal.
This was the case during the 2022 bear market and the start of the next bull market (highlighted by the red square), when meme volatility preceded four downturns in the general market.
During this period, when meme stocks were surging and making headlines, it was just laggards catching up. New long positions were quickly met with a sharp reversal that punished dip buyers.
In contrast, the volatility signals since the October 2023 lows appear to have no predictive value for the general market. One might conclude that this is simply a high-risk bull market, where a rising market tide also creates meme stocks.
If your portfolio is in positive territory this year, you might not need seven meme stocks to say the market is healthy.
Basing a stock’s performance on earnings and fundamentals rather than memes means that quarterly results can actually matter. What Palantir investors learned the hard way when they saw the stock drop 14% on Tuesday following Monday’s results.
And now, on Wednesday, two key players are coming forward to deliver more meme-centric quarterly results: Robinhood, the movement’s original accelerator and villain, and blue-chip meme stock AMC. They’re following not just Palantir, but perhaps the original source of the entire meme movement – Reddit, which filed as a public company for the first time on Tuesday.
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