Reddit, Donald Trump's Truth Media Lead Meme Stock Resurgence: 3 Criteria To Identify Next Big Movers

The meme stock phenomenon is back with a bang, as exemplified by the recent surges in the shares of Reddit and former President Donald Trump‘s Truth Media. This resurgence has prompted experts to offer three key criteria for identifying potential meme stocks.

What Happened: The meme stock trend, characterized by intense trading in individual stocks, has made a remarkable comeback. The shares of Reddit, the platform that gave rise to the meme stock phenomenon, soared by up to 120% following its IPO last week, reported Business Insider.

Similarly, Truth Media, the stock linked to Donald Trump, experienced a one-day gain of up to 59% after its SPAC debut on Wednesday. These events suggest that meme stocks have made a strong return, according to Steve Sosnick, chief market strategist at Interactive Brokers. He offered three criteria for identifying potential meme stocks:

• Social Media Fuel: The original meme stock rally was driven by an “us versus them” mentality on social media. This enthusiasm can also be found in certain cryptocurrency circles and Truth Media due to its association with the MAGA movement.
• Emotion-Driven Investing: Investors who are emotionally attached to a company or story may disregard standard valuation metrics, leading to irrational investing behavior.”If one’s investment decisions are based primarily upon emotions, then it is hardly a surprise that standard valuation metrics will be cast aside,” Sosnick said.

• Stratospheric Valuations: Stocks with sky-high valuations not rooted in fundamental value often attract short-sellers, potentially fueling a meme-stock rally. “Stratospheric valuations attract short sellers. Those investors are indeed concerned with valuation metrics and borrow shares to sell with the hope of selling high and buying low,” Sosnick said.

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Other stocks that have recently surged include “OG” meme stock GameStop, Bitcoin, and MicroStrategy, despite a lack of significant fundamental news.

“We’ve been in a highly momentum-driven market environment, and it is clear that some of that momentum has morphed into wild enthusiasm for a range of highly speculative investments,” Sosnick said.

Why It Matters: The resurgence of meme stocks is a significant development in the financial markets. This comes amid a backdrop of a strong first quarter for the stock market, with the S&P 500 on track for a nearly 10% price gain. This robust performance has predicted a potentially “frightful yet fulfilling” year-end.

Furthermore, the ongoing exceptional performance of mega-cap tech stocks could drive the S&P 500 to a further 15% surge by the end of 2024, as suggested by a recent note from Goldman Sachs. This optimistic scenario is attributed to investors’ focus on profitable growth rather than speculative companies yet to profit.

While the meme stock resurgence is a significant market event, it is also important to consider the potential impact of the 2024 presidential election on the stock market. The stark policy differences between the two key contenders, President Joe Biden and Donald Trump, are expected to lead to significant market implications.

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