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“Meme stock mania” refers to the surge in trading activity for certain stocks due to retail investors organizing and promoting these stocks on platforms such as Reddit and Twitter.
GameStop and AMC are two pivotal stocks that have been characterized as “meme stocks” because of this social media-fueled trading enthusiasm, primarily originating from the Reddit forum r/wallstreetbets. During the start of 2021, they experienced an unprecedented surge in their stock prices based on this social activity rather than their companies’ fundamental strength.
Following a quieter period, the heightened activity and discussion regarding GameStop, AMC, and other meme stocks are due to several reasons:
1. Earnings Reports: For instance, AMC’s reported earnings were better than expected, which drove up its stock price.
2. Influence of Prominent Figures: Mention from popular financial figures and celebrities can also cause these stocks to soar.
3. Social Media Trends: The continuous hype promoted on social media platforms also play a significant role.
4. Short Squeeze: Meme stocks often have high short interest. If the stock price begins to rise, short sellers may need to buy shares to cover their positions, which can drive the price up even further, causing a “short squeeze.”
This renewed interest suggests the meme stock trend and influence of retail investing aren’t over yet. However, these stocks can be highly volatile and risky, with sharp price increases often followed by substantial falls, which is why financial advisors typically recommend caution.
