This week’s meme-stock pop is a sign that U.S. equity markets are frothy and potentially peaking, according to the latest Bloomberg Markets Live Pulse survey.

GameStop Corp. and AMC Entertainment Holdings Inc., two darlings of the meme-stock mania of 2021, saw their share prices soar—then plunge—after Keith Gill, the retail-trading icon who goes by the moniker “Roaring Kitty,” put up a cryptic post on the social-media platform X. GameStop surged nearly 180% on Monday and Tuesday, while AMC leaped 135%, before both sold off on Wednesday and Thursday to cut those gains by more than half.

While the wild price action rekindled memories of the meme-stock frenzy from just a few years ago, many of the 230 respondents in the MLIV Pulse poll were skeptical that it was an encouraging sign for the overall stock market. With the S&P 500 and Nasdaq 100 indexes setting new all-time highs this week, more than 40% of those polled see the trading in GameStop and AMC as a sign of undue euphoria and a potential reason to sell. GameStop was down about 25% in early Friday trading.

“We wouldn’t have seen a surge in meme stocks like this unless equities were already somewhat exuberant,” Steve Sosnick, chief strategist at Interactive Brokers LLC, said over the phone. 

The MLIV Pulse survey found that 43% of participants view the surge in meme stocks as a contrarian warning for the market going forward. Roughly a quarter view it as a positive sign for share prices. Meanwhile, 66% of respondents say it poses no real threat to the overall equity market.

The latest spike in meme stocks is basically a blip compared to the boom in 2021. Back then, retail traders fueled massive rallies by banding together to pump up the share prices of companies Wall Street was betting against. That action was born out of lockdown boredom, no-fee brokers and social-media chatrooms, and it took weeks for investors and Wall Street pros to wrap their heads around. One similarity is several poll respondents pointed to bored investors as a reason for the latest moves.

Stocks are rallying now largely because the resilient U.S. economy, with robust consumer spending and ebbing inflation, is powering growth and bolstering the outlook for Corporate America. 

Federal Reserve policymakers have made it clear that they plan to keep borrowing costs higher for longer to rein in prices. And this kind economic strength gives policymakers little reason to rush interest-rate cuts. 

“If the Fed waits too long to cut rates, it may lead to economic weakness and pressure shares,” said Stephanie Lang, chief investment officer at Homrich Berg. “Though meme stocks have corrected quickly, which is a healthy sign for markets. Valuations are high, but they can stay that way for very long periods of time while stocks continue to rise.”

While investor confidence has been building, one sector of the market suggests it isn’t overextended yet. Leveraged long exchange-traded funds—which use derivatives to amplify daily index returns—aren’t showing anywhere near the enthusiasm they did in 2021’s meme-stock mania, according to Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence. 

Another big difference between this latest move in meme stocks and the mania of 2021 is sophisticated traders, rather than retail investors, drove it this time. GameStop was the most active stock for client orders over five trading sessions through Wednesday at Interactive Brokers, with AMC in 17th place, according to Sosnick. 

And while GameStop saw net buying interest, there also was net selling interest in the options market, which suggests covered call writing or other risk-controlled strategies by investors beyond mere speculation, Sosnick added. 

That’s why Thomas Thornton, founder of Hedge Fund Telemetry, is shorting the SPDR S&P Retail ETF (XRT). GameStop is the fund’s largest weighing, while debt-strapped online car retailer Carvana Co.—another meme favorite—is the second-biggest. 

“Trying to short some of these meme stocks is too dangerous,” Thornton said. “God knows if Roaring Kitty will keep tweeting. I don’t need that stress in my life.” 

The MLIV Pulse survey is conducted among Bloomberg readers on the terminal and online by Bloomberg’s Markets Live team. Sign up here to receive future surveys.

This article was provided by Bloomberg News.