MW GameStop's meme-stock rally is a 'short-term baseless frenzy,' brokerage CEO says
By James Rogers
GameStop's current rally is very different from the meme-stock heyday of 2021, says Dan Raju, CEO of cloud-based financial-services provider Tradier
The meme rally that sent shares of GameStop Corp. soaring this week will likely peter out in a couple of days, says Dan Raju, the CEO of cloud-based financial-services provider Tradier.
"This is short-term baseless frenzy," he told MarketWatch. "It's not based on any fundamentals. It's based on social resonance around a few securities."
He added: "I think this will fade out in a day or two."
Related: GameStop still soaring on meme rally, but beware the end of the 'buying frenzy'
Raju is not the only observer to note the disconnect between the movement in GameStop $(GME)$ shares and the company's fundamental performance. This rally is also very different from the meme-stock heyday of early 2021, which had its roots in the specific circumstances of the COVID-19 pandemic, Raju said. "The macro drivers were a lot different then than they are now," he said.
GameStop, like fellow meme-stock darling AMC Entertainment Holdings Inc. $(AMC)$, was a major beneficiary of the meme-stock buying frenzy in January 2021. Boosted by the WallStreetBets crowd on Reddit, the struggling videogame retailer's shares were sent soaring. Between January and March 2021, GameStop's stock price rose more than 1,200% and the company's market capitalization surpassed $17 billion. After the meme-stock rally of the last few days, GameStop's market cap is now $9.32 billion.
But since 2021, there has been a "graduation" effect and a greater degree of sophistication among retail investors, Raju said.
Related: Roaring Kitty rides again: GameStop's meme-stock rally shows 'gamification' may be back
GameStop shares are up 47.7% Tuesday after ending Monday's session up 74.4%. AMC's stock is up 30.1% Tuesday after closing up 78.4% Monday.
The current rally that has sent shares of GameStop and AMC soaring also reflects broader market trends in recent months, according to the Tradier CEO. "Retail, in general, is investing in short-term trades. The meme-stock rallies are a symptom of that trend," he said. "The number of options trades have gone up. There are more people trading options than ever before."
Set against this backdrop, Raju highlighted growing retail interest in so-called zero-day-to-expiration options. "People are investing in something that's expiring almost immediately. A lot of them are trading 0DTEs," he said.
Related: Retail traders are using 0DTE options again - and this is what they're doing
Raju also pointed to pent-up demand in the market around the Federal Reserve's interest-rate announcements of the last couple of months. "They were expecting rate cuts that never came," he said.
-James Rogers
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May 14, 2024 15:56 ET (19:56 GMT)
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