Meme Stocks Make a Comeback
By John Stewart, chief investment officer at Farmers Trust Co.
CANFIELD, Ohio — The so-called meme stocks, which originated with the GameStop rebellion of small traders banding together to drive up the price of heavily shorted stocks has returned.
While GameStop shares continue to see explosive daily moves and trade at valuations that defy logic, many other stocks have been joining the fray. Pandemic-ravaged movie theater AMC is up nearly 500% in the past month while shares of old-school mobile device maker BlackBerry are up nearly 100% over the same time frame.
I would strongly caution the majority of investors to steer clear of this fad, which has had the side effect of pushing smaller stocks to levels that are likely unsustainable based on their underlying business fundamentals.
Featured Insight: Consider Options to Reduce Risk
• Many investors seek to find a way to earn an attractive return while taking less risk than the overall stock market
• Despite the connotation that options are risky, they can in fact be used as a tool to both enhance a portfolio’s income while reducing risk
• By selling options on stocks you already own, or on assets you’re interested in purchasing, you put in place a mechanism to buy low and sell high – all while getting paid a cash sum for the privilege of doing so
• Keep in mind, however, that options are sophisticated instruments that must be managed with care – using them effectively requires proper education and experience
Looking Ahead: Another Fed Meeting
• Here we go again – another Federal Reserve meeting next week with no action expected
• Investors will be laser focused on any hint of the Fed scaling back its bond purchases, which currently amount to a whopping $120 billion per month
• These massive liquidity injections have continued to support asset prices including the stock market of course, and a change in policy could create some near-term volatility
• Make no mistake, however, the ultimate path forward for markets will be driven by the economy’s ability to keep corporate earnings expectations rising – for now, they continue to do so
Copyright 2021 The Business Journal, Youngstown, Ohio.