What are meme-stock frenzies and why do they fizzle?

NEW YORK – Some stocks are prone to sudden rallies and swift declines, not because their underlying businesses have changed but because of the influence of social media personalities. GameStop has reawakened the “meme stock” animal spirits twice since May, spurred by a well-known Reddit user who set off the first frenzy in 2021. A smattering of meme moments in 2024 have caused multi-billion-dollar stock moves – and big losses for investors who were late to the trade.

For trades, investors will take positions with a thesis that they can create a relatively quick return that is worthy of the risk. Plenty of managers have made money by flipping stocks actively and benefiting from market momentum. The goal typically is to efficiently make money on the trade, without holding onto the position for too long.

For other meme darlings like Faraday Future, the momentum can be traced to posts on communications platform Discord or the popular trader chatroom website StockTwits. The rallies were set off by posts on various online forums promoting views that the stocks could generate quick returns, drawing in other investors.

As it relates to Mr Gill’s promotion of GameStop, Mr Marcus said in an interview that “you can disagree with his thesis about the value of the stock, but if all he’s doing is executing on his thesis and not doing manipulative things to profit from that”, it is difficult to prove illegal manipulation.its ethics has been hotly debated

As Pillsbury partner David Oliwenstein, a member of the firm’s corporate investigations and white-collar defence team and a former senior counsel in the SEC’s Market Abuse Unit, put it: “It’s a matter of taking the current fact pattern to prove manipulative intent.”For meme-stock frenzies to last, they need to draw in new investors to the trade, which can in turn help attract other speculators.

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