The resurgence of meme stocks has been a fascinating phenomenon in the financial world, three years after they caused chaos on Wall Street and resulted in billions of dollars in losses for hedge funds. This week, a tweet by Keith Gill, also known as The Roaring Kitty, reignited the meme stock craze. Gill’s tweet boosted Gamestop stock by 255% and other stocks also saw significant increases. However, trading was suspended several times due to fluctuations.
The surge in meme stocks dealt a blow to hedge funds that had shorted these shares, resulting in losses of billions of dollars. Analysts predict that the hype will eventually deflate, emphasizing that these stocks lack substance and are driven by speculation rather than investment fundamentals. Critics argue that meme stock trading is akin to gambling and lacks long-term value, while some see it as a form of protest against Wall Street elites.
Meme stocks are defined as stocks that rise sharply due to popularity on social networks, unrelated to the business conduct or financial situation of the company. In January 2021, Gamestop shares became synonymous with meme stocks during the “Gamestop saga.” Users of the wallstreetbets forum on Reddit protested against short sellers by buying Gamestop shares, causing the stock to jump by over 1,700% and impacting other stocks like AMC and Blackberry. The saga led to significant losses for short sellers and gained media attention with a Netflix series and movie.
This week’s renewed interest in meme stocks has brought back memories of the “Gamestop saga,” but it remains to be seen whether this wave will endure or fizzle out like before as market dynamics play out in real-time.
