Meme stock revival captivates traders as US equities advance

Shares in the cinema chain AMC, which teetered on the verge of bankruptcy just months ago, surged to their highest in four years on Thursday, as investors chased companies benefiting from the economic reopening and resurrected the “meme stock” trades of earlier this year.

The 35 per cent move came as the broader US market advanced for a third day, sending the S&P 500 up 0.3 per cent by lunchtime in New York, after similar gains in Europe. Nasdaq was up 0.2 per cent and government bonds softened.

AMC was one of several companies caught up in a retail investor trading frenzy in January, along with the video games retailer GameStop, as day traders pushed stocks higher and inflicted heavy losses on hedge funds that were betting against them.

AMC shares have doubled this week and are up more than tenfold from $2.12 apiece at the end of last year.

GameStop, whose shares peaked at $483 at the end of January, is up more than one-third this week, although it was down 0.5 per cent on Thursday at $241. At the end of 2020, the stock was $18.84.

Some investors had pointed to the meme stock surge and other hot trades earlier this year as evidence of market froth but many of those trades appeared to have unwound recently. Special purpose acquisition companies, exchange traded funds run by the tech evangelist Cathie Wood of Ark Invest and shares of Tesla have all traded down significantly.

“Just this past Monday, we wrote about much of the apparent ‘froth’ having been removed from the market, citing the reduction in apparent retail participation in particular,” Christopher Jacobson, an analyst with market maker Susquehanna, wrote on Thursday. “Since Tuesday afternoon though, we have seen a fairly consistent trend of outperformance” among retail favourites such as GameStop and AMC.

Jacobson said that short interest in some of those stocks was back on the upswing, suggesting more investors are placing bets that the resurrection will be shortlived. Short interest in BlackBerry, the software company, is now above 8.8 per cent of the total float, according to data from S3, higher than the 8.7 per cent from mid-January.

BlackBerry shares were up more than 5 per cent on Thursday, after rising close to 10 per cent on Wednesday.

The latest figures for jobless claims in the US underscored the progress on reopening the economy. New claims fell to a pandemic-era low of 406,000 in the week to May 22 from 444,000 a week earlier and undershot economists’ expectations for 425,000 new claims.

That prompted a sell-off in government bonds, and the yield on the 10-year US Treasury note, which influences borrowing costs worldwide, rose as much as 0.04 percentage points to 1.62 per cent.

European debt also sold off, with the yield on the UK’s 10-year gilt climbing 0.06 percentage points to 0.82 per cent and the yield on the equivalent German Bund up 0.03 percentage points to minus 0.174 per cent.

“Markets remain steely eyed focused on the state of the employment picture in the US,” said Charles Hepworth, investment director at GAM Investments. “A rapidly improving trend will inevitably draw fears that the Fed will soon have to start talking . . . about tapering” its purchases of US government debt, he said.

Piling further pressure on bond markets, the New York Times reported that President Joe Biden will seek approval for a $6tn federal budget for next year, raising prospects of an increased supply of Treasuries to fund investments in infrastructure, childcare and public works.

The moves came ahead of inflation data on Friday that is expected to show that core personal consumption expenditure, the Federal Reserve’s favoured measure of price movements, increased 2.9 per cent year on year in April. That would the strongest annual rise since 1993.

In currencies, sterling rose 0.4 per cent against the dollar to $1.4172. The dollar index, which measures the greenback against a basket of major currencies, was steady at about its lowest point for 2021. The euro was flat at $1.2193.

Brent crude, the global oil benchmark, fell 0.4 per cent to $69.17 a barrel.

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