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Flash in the Pan Meme Moment Takes Some Stock Brokers on a Wild Ride
(Bloomberg) — The meme stock revival ended almost as quickly as it began.
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– the poster boys of the 2021 frenzy – saw stocks rise at the start of the week only to fizzle out, with most of those gains erased just days later. Other speculative corners of the market, particularly battered stocks that drew scrutiny from short-selling hedge funds, saw their booms mostly go bust as the broader U.S. stock market surged to all-time highs.
Read MLIV Pulse: Meme-Stocks Pop Signals Too Much Foam in Stocks
An they attacked the old day-trading standbys and other stocks that seemed susceptible to a short squeeze. However, unlike the weeks-long frenzy of 2021 that resulted in congressional hearings and lawsuits, the revival of meme stocks was a flash in the pan.
With the rally quickly losing its luster, AMC shares are down more than 60% from a year-to-date intraday high of $11.88, while GameStop has given back nearly all of its gains. The differences between the two frenzies – if you can call the latest iteration that – were quickly apparent. In 2021, GameStop has soared more than 1,000% in a matter of days, making this week’s spike look tame as the pair only maintained double-digit gains for the week.
Still, a recovery of more than 100% over four weeks is nothing that can be ignored completely by the video game retailer. The stock has racked up four consecutive weeks of gains, totaling about $3.6 billion in that period, although it is still more than 80% below its 2021 high.
Both companies sought to capitalize on the rises to bolster their cash reserves this week. GameStop arranged the sale of up to 45 million shares in a so-called at-the-market program, allowing its bank to create shares for sale, with the proceeds being added to its balance sheet.
For AMC, the beleaguered movie theater chain managed to raise more than $250 million through stock sales and a debt-for-equity swap, though it still faces more than $4 billion in debt, according to Bloomberg Intelligence. This week’s gains look like a blip, given that it’s still down about 90% over the past 12 months.
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One aspect of the 2024 meme stock’s momentum is how fleeting it was and the lack of follow-up on the part of retail traders. Yes, GameStop saw more than 10 times its recent average number of shares traded at the start of the week, while AMC had more than 1.7 billion shares changing hands in the five-day period, but the notional value is nothing compared to 2021.
Even with the jump in volume, retail trader activity on things like Fidelity’s platform was a fraction of the levels seen three years ago, with retail traders placing sell orders roughly matching those placed to buy.
Options markets also whipped traders, with short-term GameStop and AMC prices implying well over 500% annualized volatility at one point before falling to about half that by the end of the week. Even as the stock fell back below $40, some traders were buying GameStop call options that would only pay out if the stock rose back above $128 on Friday.
The sky-high costs attracted the attention of famed bond trader Bill Gross, who said he sold so-called straddles in both companies, betting that the wild swings would become more moderate.
The rally in AMC and GameStop eroded the profits of short sellers, traders who gain from declining stocks, meaning billions in paper losses for the group as stocks rose. Of course, these losses were partially reversed when shares fell back to earth.
The exuberance of top meme stocks has lifted shares of other companies that are also popular with the retail public and that often trade more based on sentiment than fundamentals. This group – which includes Tupperware Brands Corp., Virgin Galactic Holdings Inc.
With markets placid once again, some of the companies that were lifted in the meme stock resurgence remain beaten down over the past year.
Take Faraday Future Intelligent Electric Inc. as an example; shares are up about 2,000% this week, but are still down about 98% over the past 12 months.
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