There’s a New Reality to How the Stock Market Operates (2024)

Moneybox

We’re all just living in it.

By Alex Kirshner

There’s a New Reality to How the Stock Market Operates (1)

A short story: At 8 p.m. Eastern time on Sunday, a man named Keith Gill sent his first tweet since June 2021. It was a meme of a guy sitting up in a chair, holding a video game controller. When Gill pressed send, stock in GameStop Corp., the video game retailer, immediately shot up in after-hours trading, and by Monday’s open, it was $26.34, a nice 51 percent jump from Friday’s close at $17.46. The stock got as high as $47 on Monday morning, and now, for old time’s sake, the financial industry can run back a conversation from January 2021: What is happening? How long will it last? Are a bunch of Reddit dudes revolutionizing the financial industry and sticking it to Wall Street?

Fortunately, the conversation this time can be much more to the point than the last time GameStop’s stock ran wild. Nobody needs to pause and ask, “Wait! Why is the stock going up? It’s not as if this company released earnings over the weekend! This is entirely untethered from market fundamentals!” Keith Gill likes the stock, and Keith Gill is tweeting again, so the stock is going up. That’s pretty much it. The 2021 GameStop run—in which the stock went from five bucks all the way to the moon—originated when institutional investors took out big short positions against the stock, betting it would fall. The “short interest” in GameStop back then, the percentage of its stock held by people betting against it, was nearly all of the GameStop stock that anyone could buy. On Monday morning it was 24 percent, according to one market data provider. But Gill, aka TheRoaringKitty on YouTube, aka u/Deepf*ckingValue on Reddit, tweeted. Retail investors did not need a hedge fund to run out of business.

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After trading halted before lunchtime Monday, a Yahoo Finance segment asked, “Are meme stocks back?” No. They are not back because they never left. Meme stocks are now just a niche but durable category of stock, and GameStop having a big morning to lead the meme stock sector is only a little bit different than Amazon having a nice quarter to lead the e-commerce industry. “Keith Gill gets back on Twitter; GameStop stock soars” is basically the same as “Amazon announces significant savings in logistics and supply chains; stock up 10 percent.” These are both market developments now.

It is hard to know which companies the internet will bless with meme stock status. Even on Reddit’s WallStreetBets forum, there is not a politburo that decides what will get a big rally that week. A bunch of companies have made their own pick-me efforts to get the attention of the crowd, but most of them have been useless. AMC, the theater chain, has been the most high-profile success in the “intentionally becoming a meme stock” department. It bought a gold mine, started offering in-theater perks to retail investors, and saw its CEO appear on a publicly streamed call in his boxer shorts. Most companies are not AMC or GameStop, and the difference between the meme stock sector and, like, telecommunications is that we can’t be sure what will comprise the sector at any given time. But the sector will exist!

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In fact it has continuously existed since the moment of GameStop’s first big boom. The meme stock thing never relented, because people on the internet never stopped talking to each other about stocks and the tools available to retail investors continued to make it easier than ever to act on that intelligence. Robinhood, the kind of sleazily gamified investing app, paved the way for zero-commission trading at the likes of established trading platforms such as E*TRADE and Fidelity. Every second of every day, there are stocks going up and down because nonprofessional traders are gabbing about them on Reddit and in Discord servers and group chats. Most don’t get Seth Rogen-America Ferrera movies, but the phenomenon doesn’t abate.

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GameStop stands apart in two ways. It went first, so our attention spans hadn’t gone elsewhere by the time it was making its biggest moves. But GameStop also capitalized on its memestonk status in a way most companies have not. When its stock price was hilariously high in 2021, GameStop issued more shares and raised more than $1 billion to help its operations. It was a different company after its big meme moment than before. GameStop now trades at $10 or $15 even when it’s not the meme stock of the moment. In the late summer of 2020, the stock cost a dollar.

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And that says something about GameStop’s durability as an object of online affection. People have figured out that if enough of them buy a stock and don’t sell it, the stock will go up. But laws of gravity still apply, and unless the company can turn that love into real dollars that help the business, the meme stock is at risk of no longer being a stock at all. , a definitive meme stock that had people buying shares even as the company was spiraling toward its bankrupt death. Good vibes about a onetime heavyweight of the brick-and-mortar world did not save it, and the people who bought Bed Bath & Beyond stock in its final months lost all their money when shares went poof from exchanges in September 2023. Again, think of meme stocks as their own corner of the market. There are good, steady, durable meme stocks whose fortunes can rise with predictable market events, like a savvy dude with a webcam sending a tweet. And there are bad, scummy, volatile meme stocks like Bed Bath & Beyond. GameStop is the bluest of blue-chip meme stocks, the Apple or Nvidia of its little world.

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When I started writing this blog post, GameStop’s stock was trading at $28. I took a two-hour break. And as I type now, the stock is going for nearly $29, a mild move. It’s possible that GameStop’s stock will keep trading at this price for several more hours, even days. Could it be a week? Could it be two? None of those is exactly the right question, though, at least not for GameStop’s board of directors. The question they should be asking is more practical: What’s the fastest a public company has ever been able to spin up a new stock offering? In, say, tech, what separates winning companies from losers is how well they serve their customers and control costs. In the memestonk economy, winners become winners again and again.

  • Stock Market
  • GameStop

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There’s a New Reality to How the Stock Market Operates (2024)

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