Day traders’ profits from ‘meme stock’ frenzy have been erased: report

Reddit-obsessed retail stock traders have lost all of their gains since the the pandemic began as the government stimulus that kept markets afloat comes to a screeching halt, according to a report.

Retail traders have been hit the hardest by the recent downturn in stocks, having on average lost all the gains they made when markets were at their apex, according to Morgan Stanley, which looked at retail traders who entered the market for the first time in 2020 and created a basket of their favorite stocks.

While retail traders outperformed the S&P 500 from May 2020 to May 2021, their performance has sharply fallen off — and flatlined this year through March 2022 even as the S&P 500 made gains during the beginning of the year.

A similar study involving a Goldman Sachs basket of retail stocks showed identical results. The retail stock nearly doubled in value from January 2020 to November 2021 but dropped 32% this year. Likewise, retail traders’ buying power has also faded. In April, day traders bought just $14 billion in stocks — the second slowest buyup in nearly two years.

And the Federal Reserve’s tightening is largely to blame for the drop-off, analysts say.

“A lot of these guys started trading right around COVID so their only investing experience was the wacked-out, Fed-fueled market,” Matthew Tuttle, chief executive officer at Tuttle Capital Management LLC, told Bloomberg. “That all changed with the Fed pivot in November, but they didn’t realize that because they have never seen a market that wasn’t supported by the Fed… the results have been horrific.”

The price of pandemic darling GameStop has plummeted over the last year.
Christopher Sadowski

Companies that hit dizzying — and evidently unsustainable — heights during the pandemic thanks to retail investors snatching up the like of GameStop and AMC are now falling to their pre-pandemic valuations.

Day traders who have organized on Reddit to push so-called meme stocks including AMC, Gamestop and BlackBerry higher are out of cash as markets plunge and the government is done issuing stimulus checks.

AMC stock, which was selling for under $3 per share two years ago, hit a high of more than $60 per share last June. Since it’s high the stock has come crashing down to trade around $12 per share.

GameStop, which was trading under $4 per share two years ago jumped to a high of more than $344 before falling back close to $100.

But what goes up must come down.

Robinhood, which enabled much of the crazy pandemic is seeing its own stock fall.

And even Robinhood — known for its role in the “Reddit Rally” retail trading phenomenon — which went public at $38 a share in July has taken a more than 70% nose dive over the last year.

Robinhood’s stumble is a stark illustration that both meme stocks and the platform that powered the trading is out of fashion.

It’s a dramatic turn of events for “meme stocks” which were once so heated the Securities and Exchange Commission said it was looking into signs of market manipulation due to concerns about “volatility in certain stocks.”

Of course markets across the board are struggling. Major indices including the The Dow Jones Industrial Average, The S&P 500, and The Nasdaq Composite are all down sharply this year. But it could be retail investors who really take it on the chin.

“Retail guys don’t know what the f*** they’re doing… and there’s gonna be more pain,” one broker who spoke on the condition of anonymity told The Post.