Meme stocks fall into disuse as fears of rising rates curb speculation

People are seen on Wall Street in front of the New York Stock Exchange (NYSE) in New York, U.S., March 19, 2021. REUTERS/Brendan McDermid/File Photo

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Jan 24 (Reuters) – Meme GameStop Corp (GME.N) and AMC Entertainment (AMC.N) stocks continued to fall out of favor with investors as fears of a faster rise in interest rates clouded the outlook speculative trading.

After jumping 600% last year amid a retail frenzy, GameStop fell 11% on Monday, extending a 28% decline since the start of 2022. Similarly, AMC lost a third of its value so far this year after more than 1,100% jump in 2021.

The value of heavily shorted stocks soared when an army of small investors coordinated on online message boards such as Reddit’s r/wallstreetbets, boosting their stock prices and hurting bearish hedge funds.

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“As rates go up, the present value of future cash flows goes down and that takes some of the speculation out of the market,” said Thomas Hayes, managing member of Great Hill Capital in New York.

US stocks are coming off their worst week since the start of the pandemic in March 2020 as a rise in the cost of borrowing would signal the end of the easy money policy that had fueled a stock market rally.

“There was a period there where there was all this free stimulus money and low rates and margin availability…it’s coming to an end,” Hayes said.

Other stocks that have attracted retail investor interest also fell. Koss Corp (KOSS.O), BlackBerry, Avis Budget Group Inc (CAR.O), Workhorse Group Inc (WKHS.O), Bed Bath & Beyond Inc (BBBY.O) fell 14% to 36% until present this month. .

The $1.6 million Roundhill MEME ETF, which offers exposure to stocks with high short interest and high social media activity, has fallen in six of the seven weeks since its launch.

“For longer than expected, meme stocks have remained at a ridiculously low level,” said Joe Saluzzi, co-director of trading at Themis Trading in New Jersey.

Last week, Vanda Research, which tracks retail investor feeds, said overall social media chatter about meme stocks has declined significantly since the start of 2021, with some speculative investor interest from detail around GameStop and AMC.

Both stocks were among the top 10 most traded stocks among Fidelity clients on Friday, with buys significantly outpacing sell orders.

Short-term interest as a percentage of free float for both stocks has risen to around 20% each, according to the latest data from analyst firm Ortex. Towards the end of October last year, about 16% of AMC’s stock and 11% of GameStop’s free float were short.

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Reporting by Medha Singh and Anisha Sircar in Bengaluru; Editing by Arun Koyyur

Our standards: The Thomson Reuters Trust Principles.

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