The Takeaway: Meme Stocks Surge Again – What It Means for Investors

Meme stocks are once again making waves in the financial markets, capturing the attention of investors and analysts alike. Household names like GameStop (GME) and AMC Entertainment (AMC) are experiencing surges in their stock prices, with fluctuations both upwards and downwards.

In the past, meme stock volatility was seen as a contrary, risk-off warning for stocks. However, in 2024, these surges are being viewed as a sign of a healthy risk appetite for investments. What sets this current wave of meme stock volatility apart is that it is being driven by material news and fundamentals, such as earnings reports, rather than social media posts on platforms like Reddit (RDDT).

To highlight the impact of meme stocks on the market, a selection of seven retail-oriented, well-known names have been identified as key players in this trend. Alongside GameStop and AMC, the list includes Carvana (CVNA), Beyond Meat (BYND), Kodak (KODK), Palantir (PLTR), and Coinbase (COIN).

Analyzing the volatility of these seven meme stocks over a rolling window of five days, it is evident that significant movements have occurred, with some reaching up to three standard deviations or more. The peak of this volatility was observed on January 28, 2021, during the height of the GameStop frenzy.

When overlaying these meme stock signals on a chart of the S&P 500, there have been instances where they appeared to predict market reversals. For example, during the 2022 bear market and subsequent bull market, meme stock volatility preceded four downturns in the general market.

However, since the lows of October 2023, these volatility signals have not shown a consistent predictive value for the overall market. This suggests that the current market environment may be characterized by a general risk-on sentiment, where rising tides lift all boats, including meme stocks.

Investors who have seen gains in their portfolios this year may not need to rely on meme stocks to gauge the health of the market. Instead, focusing on earnings and fundamentals can provide a more reliable indicator of a stock’s performance. This was demonstrated recently when Palantir investors experienced a 14% drop in the stock price following disappointing quarterly results.

Looking ahead, key players in the meme stock arena, such as Robinhood and AMC, are set to report their quarterly results. These updates will provide further insight into the impact of meme stock volatility on the market and whether the trend is likely to continue.

In conclusion, while meme stocks continue to grab headlines and influence market movements, investors should remain vigilant and consider a balanced approach that incorporates both fundamental analysis and market trends. By staying informed and adapting to changing market conditions, investors can navigate the evolving landscape of meme stocks and make informed investment decisions.