An expert in behavioral finance suggests that the recent GameStop meme stock rally is unlikely to last. While meme stocks like GameStop, AMC, Blackberry, Virgin Galactic, and Koss are experiencing a surge, the return of Keith Patrick Gill, also known as “Roaring Kitty,” on social media has raised questions about the rally’s sustainability. However, the head of behavioral finance at Betterment, Dan Egan, believes that this meme stock rally is different from what happened in 2021. Egan notes that in 2021, low interest rates and stimulus checks fueled the rally, but these factors are not present in 2024. He suggests that there may be a significant number of meme stockholders from the previous rally looking to sell, which could put downward pressure on prices as they reach higher levels. Despite this, Egan acknowledges that some investors may still have an appetite for this type of investment.
According to Egan, the high interest rates have led to fewer people actively seeking to buy houses, resulting in their savings being available for risk-taking rather than immediate purchases. This mindset of not needing the money for near-term purchases contributes to the quick rise and fall of investments like meme stocks. Itay Goldstein, an economics and finance professor, agrees that the coordination among speculators and the ability to communicate through technology play a role in the surge of these stocks. However, both Egan and Goldstein believe that the trend of meme stocks is unlikely to persist and that these volatile price swings do not benefit companies and investors. In fact, they can create challenges in shareholder negotiations, acquisition plans, and employee retention.
The frenzy surrounding GameStop’s meme stock has returned, sparking a surge in AMC stock. Last time this happened, AMC saw an impressive 102% increase and managed to raise $250 million in funding.