GameStop Corp. shares recently experienced a significant surge, more than doubling with no fundamental news. This situation might remind many of the early 2021 meme-stock frenzy when day traders sent stocks on wild rides. However, a closer look reveals significant differences between the two scenarios.
Three years ago, GameStop soared more than 1,000% in a few days as retail traders rallied against Wall Street bigwigs who were short the stock. Today, the situation is different. The “Reddit Raiders,” once flush with time and cash from pandemic-era stimulus and work policies, are largely back to work and bearing the burden of higher interest rates.
Moreover, traders now have a variety of choices for wagering. Casinos and racetracks, which were closed back then due to Covid, are now open. Gambling has gone mainstream, and anyone can place a bet with a few clicks on their phone.
Professional short sellers have also largely given up on taking aim at companies with relatively small share floats, worried about the power of social media to foment a squeeze. And volumes in short-dated options, while still elevated, are nowhere near the levels seen in 2021.
The recent buying was triggered by a single post from Keith Gill, the retail-trading icon who goes by the moniker “Roaring Kitty” and drove the original mania. In less than an hour, GameStop added some $6 billion in market value. However, most of the moves pared back sharply, tamping down speculation about the start of another meme mania.
The previous GameStop saga took centre stage before the Fed began lifting rates to cool inflation. Now, the stock market and the economy are in a different place, and retail traders have seen a reversal of fortunes as high borrowing costs diminish their holdings in risky assets.
In conclusion, while the recent activity in GameStop’s stock is reminiscent of the 2021 rush, it’s not quite there yet. The market dynamics have changed significantly, and it remains to be seen whether this surge will lead to a repeat of the meme-stock frenzy or fizzle out.
