GameStop and AMC, the two companies at the heart of the original meme stock phenomenon, have seen their share prices skyrocket this week, with GameStop rising by an astonishing 340% and AMC by 133% in May alone.
TLDR
- GameStop and AMC shares have surged this week, with GameStop rising by 340% and AMC by 133% in May, after Keith Gill, known as “Roaring Kitty,” returned to social media after a three-year absence.
- Trading on these meme stocks has been halted multiple times due to excessive volatility, with the NYSE halting trading 38 times on Tuesday alone.
- The current trading halts are due to the exchanges’ automatic defensive mechanisms, unlike the 2021 events when platforms like Robinhood blocked access to protect users from volatile markets.
- The meme stock phenomenon began in early 2021 when retail investors, organized on social media platforms, collectively bought shares of struggling companies like GameStop and AMC to drive up stock prices and challenge institutional investors.
- It remains uncertain whether the current surge in meme stocks indicates a return of the 2021 mania, as the stock prices are much higher now compared to pre-2021 levels.
The catalyst for this sudden surge appears to be the return of Keith Gill, known online as “Roaring Kitty,” to social media after a three-year hiatus. Gill, considered a key figure in the 2021 meme stock craze, posted a cryptic image on Twitter that gamers recognize as a meme indicating that “things are getting serious.”
— Roaring Kitty (@TheRoaringKitty) May 13, 2024
This single tweet seems to have reignited the passion and enthusiasm of retail investors who had previously banded together to challenge Wall Street norms.
As a result of the increased volatility, trading on these meme stocks has been halted multiple times this week.
The New York Stock Exchange (NYSE) alone halted trading on GameStop and AMC a combined 38 times on Tuesday. These trading halts are a standard mechanism employed by exchanges to protect against excessive volatility and ensure orderly market functioning.
However, the current trading halts differ from the events of 2021, when platforms like Robinhood blocked access to meme stocks, citing the need to protect users from excessively volatile markets.
Traditional brokers, such as TD Ameritrade, IG Group, and Charles Schwab, also restricted trading on these stocks at the time. In contrast, the current halts are triggered by the exchanges’ automatic defensive mechanisms, rather than being initiated by individual platforms.
The meme stock phenomenon began in early 2021 when a group of retail investors, primarily organized on social media platforms like Reddit, collectively decided to buy shares of struggling companies such as GameStop and AMC.
Their goal was twofold: to profit from the rising stock prices and to challenge institutional investors, particularly hedge funds that had heavily shorted these stocks, betting on their decline.
The sudden and dramatic increase in the stock prices of GameStop and AMC led to significant volatility in the market, with prices reaching levels far beyond what traditional financial metrics would justify.
This surge forced short sellers to buy back shares at much higher prices to cover their positions, resulting in substantial losses for these hedge funds.
Retail investors saw this as a form of financial rebellion, leveraging their collective power to challenge the status quo on Wall Street.
