NordenBladet – Meme stocks have taken the financial world by storm this year, surpassing the performance of traditional S&P 500 stocks and attracting both retail and institutional investors. Stocks such as Carvana (CVNA), Coinbase (COIN), and Tesla (TSLA) have experienced remarkable gains, igniting a wave of interest and FOMO (Fear of Missing Out) among market participants.

“Has everybody lost their minds? It’s great that Carvana pulled off such a stock-goosing magic trick, but lost in all of the mania of the market is that the viability of the company’s business remains a question mark … and until proved otherwise, investing in Carvana continues to be a dash for trash. Keep in mind the stock tanked 98% in 2022,” wrote Herb Greenberg in Empire Financial Daily.

Chart: One-year summary of Carvana stock (taken 25-07-2023). Source: Yahoo Finance

But it’s not simply beginning investors capitalizing on the meme rush. The Roundhill Meme Stock ETF (MEME) has surged by an impressive 61% year-to-date, and even established players like ARK Innovation ETF (ARKK) and ProShares Bitcoin Strategy ETF (BITO) have benefitted from the speculative excitement.

However, with rapid growth come questions about the sustainability of these gains and the potential risks involved.

Biggest Meme Stock gainers:

What Is a Meme Stock?
A meme stock refers to the shares of a company that have gained viral popularity due to heightened social sentiment. This social sentiment is usually due to activity online, particularly on social media platforms.

History

Interest in meme stocks started in 2020, in what the U.S. Securities and Exchange Commission has called a “meme stock phenomenon”. The stock of American video game retailer GameStop has been one of the most popular meme stocks, with mass purchases of the stock leading to the GameStop short squeeze in early 2021. The stock of entertainment company AMC is also cited as a prominent example.Other examples include the stocks of Bed, Bath & Beyond, National Beverage, and Koss.The distinction between a meme stock and a non-meme stock is not always clear; for example, Tesla has some of the characteristics of a meme stock: a high price-earnings ratio and being frequently discussed by amateur retail traders on social media, yet some professional analysts do not consider it to be overpriced.

Interest in meme stocks is associated with trading platform Robinhood, which pioneered commission-free trading. According to The New York Times, “Robinhood was the tool of choice for traders in the original meme stocks”.

Some meme stocks have often become popular among retail investors after being targeted by short-selling professional investors, such as hedge funds,with participants having the explicit aim of causing losses among those firms. News coverage has described the choice to purchase such stocks as an act of rebellion intended to humble short-selling professional investors.

According to an SEC report, while some hedge funds had big losses, the meme stocks phenomenon did not widely impact hedge funds.The SEC staff report also stated, “some investors that had been invested in the target stocks prior to the market events benefitted unexpectedly from the price rises, while others, including quantitative and high-frequency hedge funds, joined the market rally to trade profitably.” By June 2021, according to Financial Times, some hedge funds were systematically analyzing meme stocks.

NordenBladet – Warner Bros. “Barbie” ( WBD ) and Universal’s “Oppenheimer” ( CMCSA ) led to record box office and stock gains. Together, the films earned over $235 million at the domestic box office, surpassing expectations and making it the fourth-biggest overall weekend in box office history. “Barbie” led the way with $155 million, becoming the top opener of 2023, while “Oppenheimer” contributed $80.5 million to the total.

“Barbie,” directed by Greta Gerwig and supported by Mattel and Warner Bros., also performed well in international markets, collecting an additional $182 million from 69 countries, bringing its global earnings to $337 million. “Oppenheimer” added $93.7 million from 78 international territories, resulting in a global haul of $174.2 million.

Chart: Mattel, Inc last month trading chart in US Dollars, extract from July 24, 2023 closing price. (Source Yahoo Finance)

The positive box office performance had a notable impact on the stock market, with Mattel’s shares rising approximately 1.5% and Comcast, the parent company of Universal, experiencing a 1% increase. Warner Bros. Discovery stock initially rose in premarket but dropped about 2% at the open.

The success of these movies also benefited theater chains, with AMC reporting over 7.8 million moviegoers attending its theaters during the weekend. AMC saw the best single-day attendance since July 2019 on Saturday, and its food and beverage revenue reached its second-highest daily total ever. Cinemark similarly had a successful weekend and expects it to be its best summer weekend ever in terms of box office revenue.

Mattel, Inc., the company behind the “Barbie” brand, saw its stock rise due to the movie’s success. Mattel is a global producer of toys and consumer products, offering a wide range of products under various brands, including Barbie, Hot Wheels, Fisher-Price, and others. The company sells its products through various channels, including its website, retail stores, and wholesalers.

Overall, the box office success of “Barbie” and “Oppenheimer” brought positive momentum to the entertainment industry and boosted investor confidence in the respective studios and associated companies.

Source: NordenBladet.ee

NordenBladet – China’s commitment to supporting its economy has boosted investor confidence and reduced concerns about an impending recession, leading to an improved outlook for companies in the industrial equipment and heavy machinery sectors, as well as those involved in the transportation of goods. The Dow Jones Industrial Average* has shown strong performance, outpacing both the S&P 500 Index and the tech-heavy Nasdaq 100 over the past month, marking its longest winning streak in over six years.

In Europe, the Stoxx Europe 600 index opened with little change, but shares in the basic resources sector saw a surge, driven by mining companies like Anglo American Plc and Rio Tinto Plc, which gained more than 3% due to an increase in metal prices following China’s recent stimulus commitment. On the other hand, health-care stocks lagged, with Bayer AG witnessing a 2.5% drop in its shares after cutting guidance. Notable individual movers included Unilever Plc, which climbed up to 5.1% following a sales beat, and Dassault Systemes SE, a French software maker, which saw a decline in its shares after delivering underwhelming results.

Chart: Chinese shares surge on Tuesday (25.07.2023). The SSE Composite Index also known as SSE Index is a stock market index of all stocks that are traded at the Shanghai Stock Exchange. There are also SSE 180, SSE 50 and SSE Mega-Cap Indexes for top 170, 50 and 20 companies respectively, and the CSI 300 Index, which includes shares traded at the Shanghai Stock Exchange and the Shenzhen Stock Exchange. (graph excerpt from Google Finance)

Chart: The Hang Seng Index is a freefloat-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 66 constituent companies represent about 58% of the capitalisation of the Hong Kong Stock Exchange. HSI was started on November 24, 1969, and is currently compiled and maintained by Hang Seng Indexes Company Limited, which is a wholly owned subsidiary of Hang Seng Bank, one of the largest banks registered and listed in Hong Kong in terms of market capitalisation. It is responsible for compiling, publishing and managing the Hang Seng Index and a range of other stock indexes, such as Hang Seng China Enterprises Index, Hang Seng China AH Index Series, Hang Seng China H-Financials Index, Hang Seng Composite Index Series, Hang Seng China A Industry Top Index, Hang Seng Corporate Sustainability Index Series and Hang Seng Total Return Index Series. Hang Seng in turn, despite being a public company, is controlled by another listed international financial institution HSBC Holdings plc. (graph excerpt from Google Finance)

In the US, equity futures edged higher following a mixed session on Wall Street. While the S&P 500 posted a modest gain, the Nasdaq 100 experienced a decline after a “special rebalance.” Additionally, a gauge of emerging-market stocks saw its most significant increase in three weeks. Treasury yields remained flat, and the Bloomberg Dollar Index declined for the first time in six days.

Investors are closely observing key meetings of the Federal Reserve and the European Central Bank this week, as signs of a potential end to the cycle of aggressive policy tightening may have implications for the markets. The disappointing data from both the US and euro area on Monday provided fresh reminders of the negative effects of continuous rate hikes. However, China’s commitment to supporting its economy has lifted sentiment and offered some reassurance to investors.

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* The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States.

The DJIA is one of the oldest and most commonly followed equity indexes. Many professionals consider it to be an inadequate representation of the overall U.S. stock market compared to a broader market index such as the S&P 500. The DJIA includes only 30 large companies. It is price-weighted, unlike stock indices, which use market capitalization. Furthermore, the DJIA does not use a weighted arithmetic mean.

Featured image: Unsplash