The influence of social media seems to have infiltrated every corner of society—including the stock market. In the past week, the S&P 500 (a popular index of the largest companies listed on U.S. stock exchanges) has been trading close to record highs, partly catalyzed by what are being called “meme stocks.”
Meme stocks are so named because their high trading volumes come from individual investors following popularity/hype on social media. Forums like Reddit’s WallStreetBets have proven heavily influential, especially among younger investors, sparking sudden popularity for the site’s favorite stocks.
Corporations that were affected by Meme Stocks
But a surge in interest doesn’t necessarily result in staying power. GameStop, the company most associated with this year’s meme stock mania, reported higher-than-projected second quarter earnings, but the third quarter is looking less promising as their stock fell more than 17% in one day. More recently, GEO Group (operator of private prisons and mental health facilities) rose 41.2 percent in one day, only to drop by 18% the very next day.
Meme stocks have dominated trading volumes this spring, though this has drawn criticism from some experts who warn of speculation and market manipulation. Wall Street has seen strong earnings in the first and second quarter of 2021, seemingly accelerated by public expectations of post-pandemic economic recovery. Recent numbers show high performance for tech stocks but much lower yield for bonds than expected. Trading has hit a pause this week as investors await important economic data, looking for possible signs of inflation.
Question surrounding the popularity of Meme Stock
How should individual investors take into account the popularity of meme stocks and the evident impact of social media on the stock market? The sudden rise and fall of stocks like GameStop and other Reddit darlings invite caution when it comes to following trends. Investors would be wise to look beyond the online hype and consider all the implications of their investments.
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This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
