Revenge of the Meme Stocks

Meme stock mania is back. Some heavily shorted stocks connected to well known consumer brands or heavily debated themes have been surging. Why? And what does that tell us about this equity market as a whole? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by John Marshall, head of derivatives research in Goldman Sachs Research. John, welcome back to exchanges. Thanks

for having me.

So, John, we are suddenly seeing some very big moves in some unexpected stocks. So give us the update. What is going on?

Yes. We're seeing broadly volumes pick up, particularly in the options market. And we can trace that back to small traders or retail traders that are increasing activity. This has been happening over the last few weeks, but has really only come to light, in the past few days, really, with the, big up moves in select stocks.

And so when we talk about these stocks that are moving sharply, they're often called meme stocks. But give us a definition of what that actually means. How do you define a meme stock?

Well, meme stock, I think of literally as stocks that the Internet is focused on and therefore retail traders become focused on. Now surfing the Internet and trying to nail down which the stocks those are, even by quantitative measures, usually fails. What we found works is really monitoring volumes. Small trades in specific stocks, tracking that in shares and in options, and that can enable people to get ahead of these trends.

Alright. Interesting. So you are bringing back a lot of memories of 2021 when we had, I think, in my recollection, like, really the first meme craze. So, ultimately, when you think about how does this compare to that period, which was during the pandemic? So that felt like a strange time.

Yeah. When we measure it quantitatively based on volumes, it looks like this is about half as big. And, frankly, this type of wave happens about every six months. We saw one back in January. We saw one in July. And so these waves come and go. And I think one of the things that's interesting about them is it starts out as a retail wave, and then short covering among institutional investors tends to drive it even higher. Right.

So that drives the volatility and some of these really big moves we're seeing. But I guess my question is, yes, you say we'd see them every six months, but this does feel bigger, at least to me, than what we have seen more recently. So why now for this renewed focus on these types of traits?