The unexpected became the norm during a wild year of trading in the stock market, with an army of Reddit traders, triple-digit gains, and a $100 million deli. What can be more unexpected and wild than a meme stock?
This year’s activity coincided with a surge of new investors who entered the world of stock trading to take advantage of the historic market recovery. Remote work, stimulus checks, and increased personal savings, as well as social media chatrooms, have only accelerated the retail trading boom.
Following a year with more inflows than the previous 25 years combined, the extent to which this cohort remains in the fight is a significant unknown for early 2022.
The meme stock saga began just a few days into 2021 when retail traders banded together on Reddit’s WallStreetBets forum to bid up GameStop’s shares, which hedge funds had heavily shorted. The retail buying sparked massive short-covering among hedge funds, fueling the rally further.
The trading volume for GameStop and meme stock AMC Entertainment has dwindled. Approximately 2.5 million shares of GameStop change hands daily on a 30-day average as of Dec. 22, a fifth of what it did in January.
Despite recent market declines, GameStop and AMC dropped to their lowest levels in months last week. Both stocks are up 716 percent and 1,260 percent this year, respectively.
Other stocks popular on Reddit message boards perform differently. BlackBerry is up 40% this year, while Tesla is 48%. Clover Health and Bed Bath & Beyond are about 75% and 13%, respectively.
The most bizarre investing phenomenon is a tiny New Jersey deli with more than $100 million market capitalization. With its sole location in Paulsboro, New Jersey, Hometown International noticed an eye-popping market value earlier this year during a trading frenzy. According to securities filings, the deli only made $35,748 in sales over the last two years.
Hedge fund manager David Einhorn singled out this deli as an example of speculative trading activity.
It was also the year of Special Purpose Vehicles (SPACs).
Funds raised through US particular purpose acquisition companies reached a new high of $162 billion in 2021, nearly doubling the $83.4 billion raised the previous year.
SPACs raise capital through an initial public offering. They then use the proceeds to merge with a private company and go public within two years.
The market was hot in the first quarter, with new deals gaining an average of 6.5 percent on the first day. In January, small-time investors accounted for 46 percent of SPAC trading volume on Bank of America’s platform.
The industry has now calmed down in the face of many challenges, ranging from regulatory pressure to the prospect of higher interest rates and an increasingly competitive deal-making environment. Nonetheless, one particular deal announced in the fourth quarter drew much attention. Digital World Acquisition Corp. announced going public with former President Donald Trump’s planned social media platform.
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