Meme stocks surge as tech rally gets too pricey for retail investors

At a time when the wider rally has made some stocks, especially in the tech space, too expensive, the return of meme stocks is offering retail investors a more affordable option to participate in 2023’s market rebound and pocket big returns.

Roundhill’s Meme index hit a one-year high last week and was last up 60% for 2023 so far, dwarfing gains of more than 18% recorded by the benchmark S&P 500.

The NYSE FANG+ index , housing megacap technology and growth stocks like Microsoft and Alphabet, has climbed 77% so far this year.

“Some of the retail animal spirits are coming back, but it’s a little bit more complex than the first time around,” said Thomas Hayes, managing member at Great Hill Capital.

“There’s widespread panic-buying and catch-up trade from those who risk going into the year-end flat while the S&P is up 18%.”

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Retail investors poured in $1.27 billion per day on average into U.S. equities in July, closing in on the all-time record of $1.5 billion a day in March, Vanda Research said. “What we have seen historically is that when short squeezes are happening in some of these zombie-like companies that are burning cash or in really beaten down names, that’s usually more indicative of a sign of the end of the bull market as opposed to beginning,” said Dennis Dick, market structure analyst at Triple D Trading.

The meme index consists of 25 equal-weighted U.S.-listed stocks with a combination of elevated social media activity and high short interest. It is rebalanced every two weeks.

Recent examples of rallies include a 33% jump in shares of cinema operator AMC Entertainment on Monday and a 40% rise in shares of troubled used-car retailer Carvana last Wednesday.

Net retail investor flows into Carvana hit their highest in over a year last week, before sliding a little on profit-taking, according to data by Vanda Research, while flows into AMC touched 11-month highs on Monday.

Shares of Carvana, which is also the top holding of Roundhill’s meme index with a nearly 5% weighting, are up about 850% so far this year but are still far from their all-time highs hit during the meme stock mania of 2021.

About 28.1% of AMC’s publicly available shares are under short position, according to data by analytics firm Ortex, while 55.2% of Carvana’s free float shares are shorted.