(Bloomberg) — The animal spirit is raging again among retail investors and is topping the meme frenzy of just two years ago — at least to some extent.
After losing more than 50% in their favorite stocks last year, individual traders are returning to stocks like Carvana Co. and crypto-related products as the market staged a comeback that added nearly $2 trillion in equity value in January alone.
With professional investors mostly on the sidelines, Abhiyan is increasing its presence in the retail market. Retail army trading orders in stocks and exchange-traded funds accounted for 23% of total market volume at the end of January, up from a previous peak of 22% during 2021 meme mania, according to estimates from JPMorgan Chase & Co., public data on exchanges.
“They are buoyed by the recent rebound in small-cap mem stocks and cryptocurrencies that crashed last year,” JPMorgan strategist Peng Cheng said in an interview. “Trading volumes are low overall and may also include exaggerated retail market shares.”
Optimism that the finish line of the Federal Reserve’s rate-hiking cycle is in sight has fueled bulls across all assets, but day traders have been particularly active in riding the wave. They jumped 261% in debt-ridden used car retailer Carvana and Wayfair Inc. Sent twice this year. Electric-car maker Lucid Group Inc. jumped 65% last week.
Bed Bath & Beyond Inc., AMC Entertainment Holdings Inc., and DraftKings Inc. Familiar retail choices like these are once again circulating on social media platforms
The 2021 meme-stock frenzy — where a crowd of day-traders raised the stock market and taught some seasoned pros — didn’t end well after last year’s bear market, with retail traders losing all the money they made from the meme-stock crowd.
These losses are no obstacle to the resurgence of gambling enthusiasm, until the trend turns favorable. The Roundhill MEME ETF (ticker MEME), which debuted in 2021, has advanced roughly 40% this year, compared to a roughly 9% gain in the S&P 500.
Stocks rose on Thursday after Fed Chair Jerome Powell was not particularly bothered by the January rally in markets. Asked at Wednesday’s press conference whether he was concerned about the advance of easing monetary conditions that could hamper his inflation fight, he said “our focus is not on short-term measures, but on sustainable change.”
The MEME ETF jumped more than 7% as of 11:07 a.m. in New York, while a basket of nonprofit technology stocks rose as much as 7.2%.
Michael O’Rourke, chief market strategist at Zonstrading, said Powell “gave a green light to continue the imagination.” But that could sow the seeds for problems down the road, he added. “Just because the chairman of the Federal Reserve blesses a speculative frenzy, doesn’t mean it will help the deteriorating fundamentals.”
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