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It may be the peak of summer, but it’s feeling like January 2021 again: The meme stock craze is so back.
An army of hyper-online retail traders have plucked some lucky stocks from relative obscurity and elevated them to meme status: Opendoor Technologies and Kohl’s. Yes, Kohl’s.
It all started when activist investor Eric Jackson, known for an early bet on Carvana, posted his investment thesis for real estate firm Opendoor on X. The post went viral, and triggered a surge of trading interest in the stock—which has now risen over 250% since July 14 when Jackson posted, even after shares fell 10.28% today as retail traders took profits.
It just so happens that day trading Redditors aren’t just real estate market experts—they’re savants in the world of big box retail, too. Shares of Kohl’s skyrocketed 37.62% today, after nearly doubling yesterday—making Tuesday the company’s best single-day performance ever. And for those of you who were around for GameStop the first, second, or third time, this part will sound familiar: A massive short squeeze is driving the Kohl’s mania, according to Bloomberg.
Deregulation + meme craze = ?
You may recall the heyday of meme stocks during the pandemic years, when people had way too much free time and social media exposure. But retail traders and meme frenzies have continued to become an increasingly powerful force shaping financial markets.
Brokerages are looking to tap into the degeneracy: Just yesterday, Charles Schwab said it's adding more ETFs to its 24-hour trading in order to meet demand from retail traders. The company enjoyed a strong profit in its second quarter thanks to a surge of interest from everyday investors trying to get in on the market action this year (more on that later).
Plus, a major day trading spending limit is set to be lowered by FINRA, according to Bloomberg. The “pattern day trading rule” currently requires investors making more than four day trades in a five-day period to have at least $25,000 in their margin account. FINRA is looking to drop that number down to $2,000—lowering the bar for average investors to make risky leveraged bets against stocks.
Michael Goldstein, professor of finance at Babson College and former chair of the economic advisory committee for FINRA, told Brew Markets that although the $25,000 limit was outdated, $2,000 is just too low for high-risk margin trading. “I have this concern that there's a whole bunch of 20-somethings who will have a very bad experience early on, and then shy away from the stock market as a whole for a decade,” he said.
Wall Street used to sneer at retail investors buying meme stocks, but as Opendoor and Kohl’s illustrated this week, the influence of average investors continues to grow—and now the institutions and regulators are doing everything in their power to encourage them to keep playing the market. Whether they win or lose doesn’t seem to matter.—LB