Meme stocks are once again capturing the attention of investors as the first quarter of the year comes to a close. While the frenzy may not be as intense as it was in 2021 with GameStop and AMC stocks, there are still a few standout meme stocks making waves in the market.
One such example is GameStop, which has seen renewed interest sparked by new additions to the market like Reddit and Trump Media & Technology Group Corp. Reddit stock soared over 90% in its first three days of trading, while Trump Media also saw a significant increase on its first day before experiencing a decrease later in the week.
According to Interactive Brokers chief strategist Steve Sosnick, the market rally has been driven by momentum, with investors chasing stocks simply because they are going up, rather than for any fundamental reasons. This behavior, he believes, indicates a level of froth in the market.
Annex Wealth Management’s Brian Jacobsen attributes the interest in meme stocks to a fear of missing out (FOMO) mentality among investors. He warns that while chasing hot stocks can be profitable, it can also lead to losses if investors don’t get in early enough.
So what exactly defines a meme stock? Sosnick outlines three main criteria: quasi-religious fervor, a disregard for fundamentals, and high short interest. These stocks often attract retail investors looking for higher returns in the short term, even if it means taking on more risk and ignoring traditional investing strategies.
While some believe meme stocks are driven by a fervent following, Public COO Stephen Sikes argues that they appeal to a wide range of investors with different goals and strategies. He attributes the resurgence of meme stocks to investors’ familiarity with certain companies and increased market volatility.
Looking ahead, Jacobsen suggests that the next targets of “meme mania” may be found in the small-cap space and underperforming sectors like industrials, manufacturing, and utilities. As investors continue to navigate the market, the allure of meme stocks remains a captivating and potentially risky trend to watch.
