- The reemergence of meme stock mania has professional investors facing a quandary: ride the excitement of retail traders or take it as a warning sign that the markets are due for a pullback.
- Some indicators suggest investors are abandoning restraint and betting on further gains, with margin debt reaching a new record, but signs of fatigue are also creeping in, with the latest meme stock rally losing steam and Bitcoin falling back from its record highs.
- According to Eric Diton, president and managing director of the Wealth Alliance, “I’m longer-term bullish, but I’m just short-term cautious” because of excessive speculation, and Victor Haghani, chief investment officer of Elm Wealth, says “it’s notoriously difficult to predict when” the market will turn.
The reemergence of meme stock mania last week has professional investors facing a quandary: ride the excitement of retail traders or take it as the latest warning sign that the frothy markets are due for a pullback. The speculative stocks caught up in the frenzy this week, like Opendoor Technologies Inc. and Kohl’s Corp., gave up some of their gains as the week went on, but most are still trading at their highest levels in months. The broader S&P 500 Index and Nasdaq 100 Index are doing even better, sitting at all-time highs after charging back from the early April selloff set off by President Donald Trump’s tariff announcements.
There are indicators that investors are abandoning restraint and betting on further gains. The amount that investors are borrowing to buy stocks on the New York Stock Exchange, known as margin debt, has exceeded the tech-bubble highs to reach a new record, according to data from the Financial Industry Regulatory Authority.
But signs of fatigue are creeping in. The latest meme stock rally seemed to lose steam after just a few days, and Bitcoin, one of the most visible symbols of the speculative fever, has recently fallen back from its record highs. Some Wall Street trading desks have been urging clients to scoop up discounted protection against possible losses. The current run has stretched valuations, with the S&P 500 trading at nearly 23 times forward earnings, well above the ten-year average of around 18, signaling that stocks have gotten significantly more expensive.