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Meme Stocks Are Back, Raising a "Red Flag" for the Broader Market

Bloomberg2023-07-11

  • S&P 500 trades lower when gap between memes and staples widens

  • ‘This often is the tail end of the move,’ BTIG’s Krinsky says

Investors are fascinated with meme stocks again as they hunt through lower-quality names searching for returns. And in the process they’re raising a “red flag” for the S&P 500 Index.

When some of the most heavily-shorted stocks in the market rally, like meme shares are doing now, and safe havens like consumer staples slump, investors should prepare for a few days of weakness in the broader market, according to Jonathan Krinsky at BTIG.

The Solactive Roundhill Meme Stock Index, home to the likes of Rivian Automotive Inc. and Riot Platforms Inc., has climbed more than 10% in the past three sessions, while the Consumer Staples Select Sector SPDR Fund is down 1.3%. Over the past 18 months, the spread between the two has been 10 percentage points or more 17 times, and the S&P 500 has been lower three and five days later in 12 of those occasions, Krinsky wrote.

“It’s a double-edged sword when we start seeing some of the lower quality names rally,” Krinsky wrote in a note to clients. “When we see a surge of this magnitude, however, especially relative to a defensive group like consumer staples, it often indicates a chase for what hasn’t moved and can move the most, and this often is the tail end of the move.”

The last time the meme index outperformed staples by double-digits in a three day span, the S&P 500 slumped 4.5% in the following 20 days, BTIG data show. While the data get a bit cloudy as the days go on, if the trend holds investors may be wise to take advantage of Tuesday’s modest rise ahead of the release of June’s consumer price index on Wednesday morning.

Only three of the 25 meme index members have slumped since Thursday, while big gains for Carvana Co., Riot Platforms, and Upstart Holdings Inc. have led the way.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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  • Nggimseng
    ·2023-07-11
    Nice
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  • 小辉goPro
    ·2023-07-11
    Are they really back or black hole? Should we back to stock actively or back to reality? Who know this just unforseen circumstances are make people think we are back. Always remember invest responsibility.[Happy] 
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