Stock market buzz: Insights on Kohl's, Krispy Kreme, and the recent viral meme trend
The latest episode of meme-stock mania has taken over the stock market, with the acronym DORK – representing the latest meme-stocks – setting the forums of retail traders abuzz this week. However, market experts view this phenomenon as a complex one, with both cultural normalization and heightened speculative risks influencing the overall market.
Meme-stock trading has somewhat lost its initial novelty and is now part of the everyday speculative landscape embedded in modern markets. According to Peter Atwater, an adjunct professor who studies retail investors, meme-stock enthusiasm has become normalized, somewhat akin to older generations revisiting youthful trends. Meanwhile, many aggressive traders have shifted focus to even riskier assets like digital tokens and leveraged ETFs. Amy Wu Silverman of RBC Capital Markets highlights that today's retail investors are increasingly sophisticated in using options, which intensifies speculative activity.
Despite this normalization, the mania behind meme stocks is still largely detached from underlying business fundamentals. Recent rallies in meme stocks like Opendoor, Kohl's, and Krispy Kreme were driven more by social-media buzz and influencer hype than actual business improvements. Behavioral finance experts point out that biases such as herding and overconfidence amplify these trading frenzies, leading to significant price spikes despite weak fundamentals.
Goldman Sachs flags this surge as a short-squeeze-driven phenomenon similar to the 2021 GameStop episode, warning that the speculative boom in meme stocks – with sharp price increases buoyed by high short interest and bullish options activity – raises the risk of a broader market downturn. The current speculative environment is fueled by retail trading, social media hype, and zero-commission trading platforms, which together create a fragile market susceptible to sharp corrections.
In the midst of this, the broader market is holding up well. Much of the optimism driving the market to record highs recently is due to strong corporate earnings, robust economic data, and trade agreements. President Donald Trump announced another round of trade agreements with Japan, the Philippines, and Indonesia this week, easing some investor fears about tariffs.
However, historically, August and September are weaker months for stocks, making it possible that the S&P 500 could experience a short-term seasonal pullback. Mark Hackett, chief market strategist at Nationwide, attributes much of the S&P 500's recent 20-session rally to the strengthening of the market's fundamentals. Retail investors have bought stocks worth a net $155.3 billion (around €132.5 billion) in the first six months of the year, the most in at least a decade.
Notably, some meme-stocks have seen a significant drop in value. Krispy Kreme has fallen by 27 percent from its peak, while Opendoor reported a 26 percent drop in revenue and a net loss of $392 million (around €334 million) in its latest annual results. Kohl's, which surged by 87 percent on Tuesday, fell by 14 percent. GoPro, another meme-stock, reported a 20 percent drop in annual revenue and a net loss of $432 million (approx. €369 million) last year.
Investor sentiment is approaching an "euphoric level", according to Michael Brown, a senior research strategist at Pepperstone. However, Art Hogan, chief market strategist at B. Riley, does not see any major issues on the market despite the S&P 500 being at a record high. Thus, the meme-stock mania is generally regarded as a persistent but risky facet of today's markets, with implications for volatility and potential corrections that could affect the broader stock market.
In conclusion, while meme-stock trading has become a part of the everyday speculative landscape, it remains a risky facet of the market due to its detachment from underlying business fundamentals. The current speculative environment, fueled by retail trading, social media hype, and zero-commission trading platforms, creates a fragile market susceptible to sharp corrections. However, the broader market is holding up well, with strong corporate earnings, robust economic data, and trade agreements driving optimism.
- Retail traders are increasingly venturing beyond meme-stocks, with some shifting focus to more risky assets such as digital tokens, leveraged ETFs, and options – a trend that intensifies speculative activity in today's markets.
- The meme-stock phenomenon, while embedded in modern markets, is largely detached from underlying business fundamentals, with price spikes mostly driven by social-media buzz, influencer hype, and speculative biases like herding and overconfidence.
