What the meme stock surge is telling us about the economy
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Illustration: Shoshana Gordon/Axios
It was 2021. People were bored and stuck at home. Stimulus checks piled up. Interest rates were zero. And a series of unhinged rallies drove meme stocks to prices far above any plausible fundamental value.
The big picture: The stance of monetary policy is radically different now, yet meme stocks are having a new moment, along with speculative crypto assets and other hallmarks of that bubbly environment three years ago.
- The assets in question have minimal macroeconomic importance, but they coincide with market moves with higher stakes.
- The fact that the ultra-speculative vibes are back raises questions about whether the Fed's policies are cooling down financial conditions — and, by extension, inflationary pressure — as much as advertised.
Driving the news: Keith Gill, who under the name "Roaring Kitty" fueled the 2021 GameStop craziness, put out an inscrutable tweet this week, and shares of meme stocks GameStop and AMC have roared higher.
- It comes amid other frenzies around speculative assets, including recent highs for bitcoin and, as our colleague Felix Salmon noted recently, high spending on "lulz, irony, and ephemera."
Between the lines: It would be madness for the Fed to set policy for the $28 trillion U.S. economy based on the price of a couple of mid-cap stocks or somebody spending millions on a picture of a dog wearing a hat.
- But it might be worth thinking of the meme stocks and other speculative assets as the most vivid examples of a broader market buoyancy.
By the numbers: The cumulative net worth of U.S. households dipped after the Fed started tightening monetary policy, falling by $9 trillion in the first half of 2022. But it's up $12.4 trillion in the six quarters since then.
- In Q4 of 2023, American households' net worth was a stunning 42% higher than at the onset of the pandemic (in non-inflation-adjusted terms). A market rally so far this year will surely push those numbers higher.
- Higher net wealth is likely a factor in continued resilience in consumption spending, which has kept overall demand strong despite rate hikes.
State of play: A central debate within the Fed this year is over how restrictive their policy stance really is. The longer speculative fervor continues, the weaker the case that a target interest rate near 5.4% is throttling activity.
What they're saying: "The Fed funds rate currently sits above levels that most analysts would consider necessary to stabilize inflation at full employment," wrote Jason Thomas with the Carlyle Group in a note.
- But while the Fed's policy rate may be restrictive, he adds, "the broader constellation of valuation ratios and borrowing costs that light up the Bloomberg Terminal leave a different impression."
