Meme stock trading loses its luster as the market slips

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Last year, meme stock trading was the new thing, as many newbie investors took inspiration from Reddit’s WallStreetBets chatroom and drove speculative stocks like GameStop. (EMG) – Get the Class A report from GameStop Corp. and AMC Entertainment (CMA) – Get the Class A report from AMC Entertainment Holdings, Inc. higher.

But this year, the party is collapsing, as rising interest rates have put the kibosh on risky assets. Video game retailer GameStop’s stock has fallen 36% over the past month and movie theater chain AMC has lost 42%.

A basket of 37 meme stocks followed by Bloomberg slipped 15% over the past week. The VanEck Social Sentiment ETF (BUZZ) – Get the ETF VanEck Social Sentiment Reportwhich tracks stocks that get attention on social media, has fallen 20% this year.

WallStreetBets was the place to be last year, with membership quintupling to over 11 million now, from less than two million at the start of 2021, according to the Wall Street Journal.

But now that meme stocks have gone off the rails, WallStreetBets has lost its cache. On average, last November, the site received about 27,000 comments on its main page, up from about 47,000 a year ago, according to analysis by TopStonks Data Log, which tracks actions mentioned on sites. website.

Newbie investors have discovered that it’s not so easy to make money when the stock market is falling, and many have become discouraged.

Retail traders now account for about 18% of market volume, up from 24% in the first quarter of 2021, according to Bloomberg Intelligence.

“Most retail investors don’t know how to trade in this market,” Larry Tabb, head of market structure research at Bloomberg Intelligence, told Bloomberg News.

“They buy – the price goes up, they sell and buy again. But when the market falls, they don’t know how to sell short, don’t understand options, and when they buy and lose, they tend to think prices will bounce back, so they hold on instead of selling.

There may be a silver lining to this. Falling meme stocks may lead novice investors to more conservative choices.

For example, interest rate hikes by the Federal Reserve could drive these investors into bonds, JJ Kinahan, chief market strategist at TD Ameritrade, told Bloomberg.

“These are people who can start to understand the different products they can choose for their own financial future,” Kinahan said. “The market is constantly changing, and this is one more way.”

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