While Meme Stock Mania Fizzles, Wall Street Sees ‘Big Reckoning’

Photographer: Tiffany Hagler-Geard / Bloomberg

The day-trading Reddit crowd turned the first quarter of 2021 into one of the wildest periods of stock market mania in modern history. Books – plural – will undoubtedly be devoted to the subject in the years to come.

But after these little speculators banded together for dozens of obscure stocks by hundreds or even thousands per cent – and in the process burned a few hedge fund barons betting on declines – the move appears to be disappearing. An index that tracks 37 of the most popular meme stocks – 37 of the 50 that Robinhood Markets banned clients from trading during the height of the frenzy – has remained essentially unchanged for the past two months after rising nearly 150% in January.

Talk to Wall Street veterans and they will tell you that this flat liner is the beginning of what will be an inexorable downward move in these stocks.

It’s not so much about the poor fundamentals of the companies. At least not in the short term. The day trade zealots have shown a surprising ability to ignore those facts. It is more that as the pandemic slowly ends and the economy begins to open up, many of them will leave their homes and go back to offices and restaurants and travel in the neighborhood and far away. And while they do, they can stop obsessing about their Robinhood accounts.

In other words, their collective influence on the meme-stock universe will diminish.

“People are going to do different things,” said Matt Maley, chief market strategist at Miller Tabak + Co. There will be a “big checkout” at some point, he said. “There is no doubt in my mind.”

Of course, by and large, the Wall Street set misread the Reddit crowd weeks earlier this quarter, and it’s possible their analysis is now wrong again. Preliminary data, however, suggests they are right.

Recent reports suggest vaccinated Americans are planning long-awaited vacations with searches for “Google Flights ”hit a peak popularity score of 100 this week, according to a Google Trends tracker. The opposite is seen with terms such as’stock trading ‘and’invest ”that have declined, Google Trends shows.

“The impact of the incentive check on retail is diminishing,” said Edward Moya, senior market analyst at Oanda. “Many Americans are eager to attend sporting events, travel across the country, go on vacation, visit family and friends, and redecorate wardrobes before going to restaurants, pubs and returning to the office.”

Read more: Americans signal they will spend incentive on travel, not GameStop

Gamestop Juggernaut

Retailer of video games GameStop Corp. became the poster child for retailers who wanted to rage against the hedge fund elite. The stock is, however 2,460% roller coaster alongside other favorites touted on Reddit’s WallStreetBets thread caused as much pain as joy.

The stock’s rise this year by more than 900% has caught the attention of the Wall Street analysts who follow it. The 12-month average price target means that the stock will lose more than three-quarters of its value from its current level. Only Jefferies has a target price near the closing price of $ 191.45 on Thursday, and that call came with a warning that stocks are “subject to volatility beyond fundamentals.”

But any sense of GameStop basics trading has been ignored since it first fascinated Wall Street and Reddit users in the second half of January. Bulls are more than happy to advertise their bets on forums as a move to keep it to short sellers as they buy into a business rebirth delivered by activist investor Ryan Cohen.

Read more: GameStop adds another Amazon Executive to Team

Given AMC Entertainment Holdings Inc.’s position as a movie theater that many Americans once went to isn’t a complete surprise as to why Reddit users rushed to help the company’s assistant. #SaveAMC trended on Twitter and amateur investors seemed more than happy to fight Wall Street skeptics, despite most movie theaters being closed due to the ongoing pandemic.