DORKs: The return of 'meme stock' mania

"Meme stock traders are no longer a punch line," and in fact they have "become a force that Wall Street has to monitor."

(Image credit: Business Wire / AP)

A "meme stock" rally in troubled brands carries echoes of 2021, said Claire Ballentine and Carmen Reinicke in Bloomberg. Last week, the "shares of the moment" didn't belong to Google or Tesla, but Krispy Kreme, GoPro, Open-door, and Kohl's, the floundering retailer, whose stock price "more than doubled at one point." All are heavily shorted companies with low share prices that amateur traders spontaneously rallied behind, hoping to "strike quick riches." Social media platforms like Reddit are once again abuzz with trading slang and emojis, recalling "the episode four years ago, which famously led hedge fund manager Gabe Plotkin to shutter his fund" after a coordinated effort on Reddit's WallStreetBets forum drove up the price of GameStop shares more than 2,400%. With the economy humming and the stock market near record highs, the "apes" are back—and "in full-on risk mode."

Let's revisit "the anatomy of a meme stock," said Madison Mills in Axios. Normally these are "brand names that people can get behind." A case for revival, however fanciful, gets shared on a Reddit thread, "which then goes viral." This is completely antithetical to sound financial judgment. But "meme stock traders are no longer a punch line," and in fact they have "become a force that Wall Street has to monitor." The exact trigger of this particular rally is unclear, said Rob Copeland and Kailyn Rhone in The New York Times. Like the previous meme stock mania, this one centers on stocks "that hedge funds were shorting, or betting against." That can create a "short squeeze," driving up prices and forcing those funds to buy to cover their short positions; that was the process that took down Plotkin's fund. But that may be too coherent to explain the current craze. It might just be that some speculators find it appealing that the four most popular stocks in this "junk rally"—Krispy Kreme (DNUT), Opendoor (OPEN), Rocket Mortgage (RKT), and Kohl's (KSS)—form the acronym DORK.

It's like we entered a time machine set for 2021, said Joseph Adinolfi in MarketWatch. Traders on WallStreetBets "bragged about their gains and urged one another to hang tough" and not sell. One trader shared screenshots "showing they had reaped an $850,000 windfall from a big bet on Kohl's," while another person "plunked down $100,000 on shares of Krispy Kreme" because he "had always regretted missing the boat" on GameStop. Everyone is hoping to snag the next GameStop, said Pan Yuk in the Financial Times. The FOMO, or fear of missing out, is a big driver of the action. The new frenzy might "best be interpreted as a gauge of the market's animal spirits." This isn't investing. It's "buying a lottery ticket."