To The Moon

$ROUNDHILL MEME ETF(MEME)$ , the first ETF designed to track the performance of meme stocks, is up 67% this year.

Meme stocks turned to positive momentum in 2023, leading a resurgence in venture capital this year. For instance,  $GameStop(GME)$ was up 25% year-to-date and others like $Rivian Automotive, Inc.(RIVN)$ (up 34% year-to-date), $BlackBerry(BB)$ (up 48% year-to-date) and $Palantir Technologies Inc.(PLTR)$ (up 181% year-to-date) saw similar growth.

With longest positive value of bull-bear spreads since November 2021, the recovery of bullish sentiment is reminiscent of the market boom of late 2021, when the market saw increasing participation of retailers before the catastrophic crash.

MEME ETF is up more than 60% year to date

The MEME ETF, an ETF linked to the Index $ROUNDHILL MEME ETF(MEME)$ , tracking the performance of meme stocks, have shown incredible gains, up 67% this year. The index's top stock is bitcoin miner $Riot Blockchain, Inc.(RIOT)$ , which has soared 458% this year.

What’s more, there are other top performer. For instance, AI lending platform $Upstart Holdings, Inc.(UPST)$ grew 341%; $Coinbase Global, Inc.(COIN)$ grew 211% with 34% and 1,077% up from electric car maker $Rivian Automotive, Inc.(RIVN)$  as well as $Carvana Co.(CVNA)$  respectively.

In addition, Bitcoin exceeded expectations with soaring 80% in 2023, further attracting retail traders. The stock market has risen despite increasing regulatory scrutiny in the U.S., with the SEC filing complaints against the industry's most prominent players such as Coinbase .

Bullish Sentiment Reaches Highest Level Since 2021

According to a survey conducted by the American Association of Individual Investors (AAI),  bullish sentiment from retail investors, which represents upward expectations in the stock market over the next six months, reached its highest level since 2021.

In addition, the bull/bear spread has been positive for six consecutive weeks— indicating the difference between rise and fall expectations from investors, reached the longest stretch since November 2021.

Confidence towards the overall U.S. economy is also on the rise. According to a survey by the University of Michigan, the the Consumer Confidence Index surged in July from 64.4 to 72.6, which is the largest increase since September 2021 and the sharpest increase since 2005.

David Wagner, a portfolio manager at Aptus Capital Advisors, said investors' concerns about potential risks have eased since the Federal Reserve intervened in March to stabilize the banking system. He says, "Nothing can stop this rally unless major risks reemerge."

Experts think the market could be headed for a crash 

Some market experts believe the market may be heading for a crash. They mentioned similar optimism among retail investors at the end of 2021 with a low put-to-call ratio as well as the $Cboe Volatility Index(VIX)$ , leading to an eventual market crash to end the year.

In addition to this, other factors raised concerns about economic stability.

Rising borrowing costs threaten economic growth and could limit access to credit for businesses and households. According to the Federal Reserve, interest rates on auto loans and mortgages have risen about 3% in the past year, while credit card interest rates have risen from 16% to 22%. Although inflation has declined slightly with 3% in June, it still exceeds the Fed's target rate of 2%.

Jason Bloom, head of fixed income and alternative ETF strategy at Invesco, warns that interest rates are required to rise continuously if the economy enters stagflation. That's not good news for investors. 

What We Should Think About the Meme Stock Boom

In the long run, quality wins. Research has shown that quality stocks have had a significant advantage over junk stocks over decades of stock market history.

It's easy to forget this eternal truth during the shorter periods when quality lagged abnormally and junk stocks drove the market higher. That's certainly been the case this year, as evidenced by the Roundhill MEME ETF (MEME), which invests in the meme stock index and has tripled the year-to-date return of the $S&P 500(.SPX)$

However, if we broaden our focus slightly, a distinctive situation emerges. For example, since the beginning of last year, the MEME ETF was down a cumulative 42%, while the S&P 500 was down only 5%.

To be sure, Meme stocks aren't necessarily low-quality. The Roundhill ETF invests in stocks based on their popularity on social media. However, as a general rule, social media popularity stems not from a belief in the long-term potential of a stock, but its lottery-like characteristics— the potential for a huge windfall in the short term.

Referring from lessons in history, quality stocks will significantly outperform MEME holdings in the long run.

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