The meme stock craze may finally be over

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CNN Business

It’s time to sing a lament for a meme. Nipple stocks, that is. Companies are struggling to attract crazy followers from merchants on Reddit and other social media sites in 2021. Just look at GameStop.

Shares of the video game retailer, which will report its latest results after Wednesday’s closing bell, have fallen nearly 35% this year after rising more than 685% last year.

GameStop (GME) is expected to report a quarterly loss of $84 million and sales growth of just 4.5% from a year ago. According to a report from Axios, the company is also said to be in the midst of a series of layoffs. GameStop (GME) was not immediately available for comment.

But GameStop isn’t the only meme stock that has become popular with most traders, as they thought it would be funny to try to punish hedge funds and other investors who were having a hard time betting against them.

Shares of movie theater chain AMC (AMC) are down 55% this year. And the new class of preferred stock that AMC (AMC) released earlier this year, featuring the abbreviation symbol “APE” to greet loyal fans who call themselves “monkeys” on social media, tumbled more than 90%. at the highest price.

AMC is still losing money and the health of the theater industry is still under threat.

Box office revenue drops sharply in 2019 from pre-pandemic levels as Hollywood releases fewer blockbusters in theaters and moviegoers continue to choose to stay at home and stream movies and TV shows. Shares of cinema owners Cinemark (CNK), Marcus (MCS) and IMAX (IMAX) are also lower this year.

Then there’s Bed Bath & Beyond (BBBY).

The struggling retailer got a brief boost earlier this year when GameStop president and Chewy (CHWY) co-founder Ryan Cohen took a stake in the company, sparking hopes among memsters that it’s planning a big comeback. However, Cohen sold his shares in August. The stock is down 75% this year.

What happened? It seems that part of the problem is the end of the pandemic-induced day trading spree. Considering the unemployment rate peaked at 14.7% in April 2020, when the pandemic first hit the US economy, at only 3.7%, there aren’t many people who are stuck at home using stimulus checks to buy stocks. Americans are no longer facing Covid lockdowns and many have returned to the office…at least on a part-time basis.

But investors may also be realizing that companies like GameStop, AMC, and Bed Bath & Beyond are facing legitimate challenges. Earnings, sales and other fundamentals matter above all, especially in an economy that is starting to show signs of weakness.

“There is still a lot of danger in stocks. “There’s no real bargain,” said Matt Smith, Ruffer’s director of investment. Smith argues that there are better opportunities for investors to bet on short-term stocks, that is, that prices will fall, than long-term purchases.

But for the most part, investors realize that in uncertain times like these, it may make more sense to play it safe than to take a big gamble on a meme stock.

Interest rates continue to rise. This makes the 10-year US Treasury, which has a yield of about 3.6%, very attractive.

“Bonds look better than they have in 15 years,” said Steve Wyett, chief investment strategist at BOK Financial.

Wyett notes that the Federal Reserve has not yet finished raising rates. The central bank’s key short-term rate is currently in the range of 3.75% to 4%.

Another rate hike will be made once the Fed concludes its policy-making meeting on December 14. The only question is whether this will be just a half-point increase or the Fed’s fifth straight increase of three-quarters. Wyett says the Fed will continue to raise it in early 2023.

“The impact of what the Fed has done and can do up to this point on the stock market is ahead,” he said.

Add all that and it’s a miserable time for investors to consider speculative meme stocks.

Steven Wieting, chief investment strategist at Citi Global Wealth, added that higher interest rates will make it more difficult for struggling, unprofitable companies to pay off their debts.

“There is some level of risk aversion in this market. “When you summarize the bulls and bears this year, the bears have won,” Wieting said.

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