CNN Analyst Warns Meme Stocks To Crash Back To Earth

Meme stock mania was supposed to be over, right? Guess what: It’s not. Sure, the entire market did well in January. But many of the Reddit/WallStreetBets darlings of two years ago were particularly strong performers.

Photo Insert: shares of GameStop are up more than 25% as well.

Shares of movie theater chain AMC have soared nearly 65% so far in 2023, and AMC’s companion preferred stock has more than doubled.

Meanwhile, Bed Bath & Beyond has gained about 30%, despite rumors of an imminent bankruptcy filing and more store closings. And shares of GameStop are up more than 25% as well.

Speculative investors are going all-in on crypto too. With bitcoin rebounding from a 52-week low of about $15,600 to a current level of just under $24,000, Coinbase shares have skyrocketed an astonishing 140% since the end of 2022.

Then there’s Cathie Wood’s ARK Innovation exchange-traded fund, a poster child for speculative bets that owns Tesla, Zoom, Roku, and Coinbase among its top holdings. This ETF has had an incredible start to 2023, surging more than 40%.

“So did investors learn nothing from last year’s market meltdown? I wrote last week about how one strategist dubbed this year’s market madness as a ‘flight to crap.’ Others are a little less critical of the so-called junk stock rally, but they are still worried this won’t end well,” La Monica argued.

“I’m concerned generally. I don’t agree with this market rally in meme stocks,” said Erik Ristuben, chief investment strategist with Russell Investments. Ristuben said he still thinks odds are greater than 50-50 that the economy is heading toward recession. If that happens, lower-quality stocks should get hit hard.

Another strategist agrees this recent rally for meme stocks and other speculative bets may not end well.

“At the start of every year you typically see a mean reversion. The stocks that went down a lot at the end of the previous year get bought,” said Michael Sheldon, chief investment officer with RDM Financial Group at Hightower.

“But this year’s sharp rally and rebound in beaten down names has been an extreme example of that.”

The trouble with meme stocks and other speculative companies is that they are often struggling to sustainably make money. They are story-driven companies rather than businesses that have solid earnings and cash flows, La Monica warned.

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