‘Flight to crap’: US meme stock fever is spreading like it is 2021

NEW YORK – Stocks are at all-time highs. Chatter on WallStreetBets, a popular forum on the Reddit website, is surging. Retail traders are flooding into low-priced shares. 

It is not 2021, and the shares of the moment are not GameStop, AMC Entertainment Holdings or the now-bankrupt Bed Bath & Beyond. In 2025’s meme stock mania, the companies du jour are Opendoor Technologies and Kohl’s. The similarities are clear: Like the episode four years ago, amateur traders are piling into heavily shorted companies with low share prices in a bid to strike quick riches.

And, as was the case back then, it comes at a time of broad market euphoria: The S&P 500 is at an all-time high, Bitcoin has doubled in less than a year, and blank cheque companies are all the rage again.

“I’ve been seeing signs of a ‘flight to crap’ recently,” said Mr Steve Sosnick, chief strategist at Interactive Brokers. “The recent rally, which was largely powered in its initial phase by individual investors buying large cap stocks and major indexes, has emboldened many to engage in more risky types of investing.”

The latest day-trader darling is Kohl’s. The retailer’s share price more than doubled at one point on July 22, coming after tech-powered home flipper Opendoor skyrocketed last week. The Campbell’s, Aehr Test Systems, Polaris and Wendy’s, which also have relatively high short interest, are also attracting buyers. Yet unlike the pandemic era, when stimulus cheques shored up household finances and Covid-19 restrictions limited spending options, traders could face a tougher backdrop this time around.

Just three months ago, stocks were plunging as US President Donald Trump unveiled his new tariff plan, and many everyday Americans are still struggling under higher prices and a brutal housing market. 

And those who do have money to burn have no shortage of alternatives that were not as readily available just a few years ago, from sports betting to a bevy of new crypto investment options to prediction markets like Kalshi. Despite all the risks, both professional and amateur traders are in full risk-on mode, leaving some experts worried about irrational exuberance creating a bubble that is destined to pop. It is a fear that is only gaining in credibility as so-called “dumb money” floods back into risky companies with little to no profitability. 

“The meme stock enthusiasm tends to overlap with crypto enthusiasm,” said Mr Michael O’Rourke, chief market strategist at JonesTrading. “There’s been significant crossover from the crypto market into equities, with many shell companies converting their business models into digital asset treasury companies. Now the fever is spreading to meme stocks.”

Fomo market 

The frenzy has been building in recent weeks. The S&P 500 reached another record this week, Bitcoin remains near US$120,000, while special purpose acquisition companies, or Spacs, are having their busiest year of initial public offerings since 2021.

“New highs feed into the fear of missing out,” said Mr Michael Arone, chief investment strategist at State Street Investment Management. “Certainly there seems to be a fair amount of liquidity blowing into the market.”

Retail traders are now a key component of the US stock market, comprising 20.5 per cent of total volume. On top of that, trading activity in names priced below US$5 makes up more than 26 per cent of the overall trading volume, according to Jefferies Electronic Trading Solutions.

Looming concerns 

Of course, piling money into shoddy equities is not for the faint of heart. While many retail traders brag about striking it big, others tell tales of epic wipeouts. The all-or-nothing gamble was somewhat more tolerable back in 2021, when stimulus cheques from the federal government helped shore up Americans’ savings and any losses could be written off as the cost of having fun.

These days, the job market is weaker, interest rates are higher and mandatory student loan payments have resumed. That has some analysts predicting this meme stock rally will fade much more quickly.

Others see the return of meme stocks as a natural release for investors who were spooked earlier in 2025 by sharp market losses after Mr Trump’s “Liberation Day” tariff announcement.

Since he paused those rates from taking effect – ushering in the so-called Taco trade, based on the idea that “Trump Always Chickens Out” – the equity market has seen its fastest-ever recovery from a bear market drawdown. That has padded the wealth of investors big and small.

Mr Arone at State Street draws comparisons with 1998, when financial crises in Asia and Russia rattled markets. “It was an incredibly volatile year, yet it also ended up being a very strong year for markets,” he said. “And I think that’s where we may end up in 2025. So I’m uncomfortably bullish.” BLOOMBERG