Stocks and crypto have surged to record highs. Meme stocks are soaring. And shares of Donald Trump’s unprofitable social-media company spiked, adding billions to the former president’s net worth.

It’s easy to look at the market lately and think it was lifted straight out of late 2021. That autumn was the height of the “everything rally,” when Bitcoin hit an all-time high of $68,000 and GameStop shares were rebounding into $60 territory. But those heralding a return to retail trading’s heady heyday may be getting ahead of themselves, with researchers already questioning how long the current five-month rally in equities can last.

What’s more, analysts and investors said the way people trade in 2024 — and the economic conditions in which they are doing so — have evolved. These days, there’s an argument that retail traders in this new risk-on era are more seasoned, less emotional and more strategic.

Take Matt Curran. The 36-year-old patent and trademark lawyer from the greater Boston area knew what happened with WallStreetBets favorites like AMC and GameStop. He lurked in those Reddit forums, too. But back then, Curran never invested in those meme stocks.

But the Trump SPAC, which began trading under the ticker DJT this week, gave him a shot to try his hand at options trading. Curran had been reading about the company for a while and when he saw a midday dip last week before the deal took place, he bought in. His investment was short term, and he knew it was a big risk. But he ended up making a 50% gain and pocketing about $500.

“I see it as a meme stock,” said Curran, who identifies as an independent and said the play wasn’t about politics. “I thought there was a decent chance it was going to get pumped to the moon.”

Retail Trader 2.0
Individual investors have been following the parent company of Truth Social since 2021, when Trump Media & Technology Group Corp. and a special-purpose acquisition company called Digital World Acquisition Corp. announced plans to merge. And with the much-anticipated completion of that deal on Monday, Trump’s notoriety and the bullish sentiment in stocks helped send shares of the newly merged firm soaring. (The stock fell 6.4% Thursday after three days of large gains.)

Just a few scrolls through Reddit appear to reveal so-called dumb money at play here. No matter the criminal cases the former president faces, the hefty fine looming in New York or the company’s weak fundamentals, supporters of Trump’s presidential candidacy and everyday investors have thrown money into the company. But more stoic traders like Curran knew it could be a volatile ride. They’ve seen many meme surges and slumps before, and wanted to dip in and out quickly.

“We are beyond the point of retail investors not knowing what they’re doing,” said Sam Nofzinger, general manager of brokerage at investing platform Public. “They’re the version-2 retail investor, they’re just a bit more sophisticated.”

Focused FOMO
One of the changes analysts are seeing across the individual-investor landscape is a shift from yield to risk. The everything rally that peaked in 2021 gave way to a deep trough in 2022, as interest rates rose and investors feared rising geopolitical risk and the potential for a recession. In that environment, the rising yields from bonds drew retail interest away from riskier assets. Americans purchased billions of dollars of savings bonds, and even dabbled in corporate debt.

But something changed last year. The US recession analysts kept predicting never arrived. Markets drifted upward and  retail traders began to realize they needed to shift back toward stocks.

“They finally capitulated,” said Public’s Nofzinger. “They said, ‘You know what? A recession’s not coming. Stocks are going up. Why do I need cash? Let me just go buy some of these AI stocks, some of these growth stories and actually try and invest again.’”

That doesn’t mean a broad-based, meme-mania is on the horizon. Instead, experts see a more focused fear-of-missing-out (FOMO), centered on artificial intelligence. Trump’s company isn’t an AI story, but it was boosted by a market riding the rising tide of the current technology boom. Reddit pitched itself as having potential to train the large-language models needed for AI. Everyday investors are also  clamoring for shares of AI company Nvidia Corp. the way they used to chase Tesla.

“The FOMO effect is still strong, but it’s just got a different driver, which is AI,” said Susannah Streeter, head of money and markets at investing platform Hargreaves Lansdown.

Still, she noted there could be “overenthusiasm” in the market, and that the precise trajectory of AI is difficult to map. It’s a sentiment researchers at JPMorgan Chase & Co. share, with fears that so many investors have crowded into stocks of late that a correction could come on fast and hard if large investors start to re-position and the crowd quickly follows. And Reddit, one of the stocks that’s driving the 2021 sentiment, has wobbled.

Institutional Crypto
Part of the reason eToro’s Ben Laidler doesn’t see a meme-stock reemergence on the same scale as 2021 is because of the end of the recent crypto winter. With institutional dollars buying up Bitcoin for their recently launched ETFs, as well as the planned “halving” intended to limit the cryptocurrency’s issuance, Laidler views the latest rally as less of an outgrowth of pure, retail speculation and more of a classic “supply-demand squeeze.”

“I don’t think the old meme stocks are about to come back,” he said. “Retail investors have basically moved on, and moved back into crypto.” 

This article was provided by Bloomberg News.