What Does the Meme Stock Rally Say About the Economy?

By: Kaydee Ambas · May 16, 2024 · Reading Time: 3 minutes

Sparking Flashbacks

So-called “meme stocks” like GameStop (GME) and AMC (AMC) are back in the spotlight after seeing one of their best weeks in years. These names have become popular among retail investors not because they’re fundamentally strong or endorsed by analysts, but mainly because of all the buzz they generate online.

Their gains made in recent days were the highest since 2021, when a series of viral Reddit (RDDT) posts helped these stocks post triple-digit gains in a matter of weeks. However, today’s economic picture looks much different than it did in the middle of the pandemic. How have meme stocks still managed to rally?

Forces at Play

Back in 2021, the meme stock craze had some pretty clear catalysts. Interest rates were at historic lows, and with those stimulus checks landing in mailboxes across America, many folks found themselves with a bit of extra cash and time to spare. Many turned to the stock market for some excitement, and retail investing went through the roof.

Fast forward to now, though, and things have shifted quite a bit. The Fed has been keeping its benchmark interest rate at levels not seen in decades, while inflation has been hanging around uncomfortably high numbers for quite some time, peaking at a whopping 9.1% in 2022 and still hovering over 3% recently. Given these economic indicators, many expected people to tighten their purse strings and play it safe with their investments, steering clear of meme stocks.

But it seems like there might be more to this latest rally than just market dynamics. The timing of it all lines up with a social media post from Keith Gill, aka “Roaring Kitty,” who many credit with kickstarting the whole GameStop short-squeeze frenzy. However, this surge might not have the staying power of the 2021 hype. By the middle of the week, AMC and GameStop had already started giving back a large chunk of their gains.

Looking Forward

While this meme stock surge might not have the legs to match the marathon of 2021, it could still be signaling something bigger for the market. Consider this: over the last six quarters, U.S. household net worth has soared by $12 trillion, even with inflation sticking around and the Fed keeping a tight grip on policy. This could suggest that consumer spending is standing firm in the face of economic uncertainty, pointing to a broader resilience in the market.

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