Meme stock rally could be sign that investor appetite for risk is returning

NEW YORK, Oct 31 (Reuters) – Rallies in Getty Images Holdings Inc. (GETY), Revlon Inc. (REV), Tilray Brands Inc. (TLRY) and other so-called meme stocks on Monday may be another sign that investors’ appetite for risk is rebounding as the broad S&P 500 closes out the month of October with an 8% gain.

Getty Images, which returned to public markets in late 2021 after merging with a SPAC, rallied nearly 35%, while Revlon Inc, which said last week that it was exploring a sale of the bankrupt company, rose 4.8%. Canadian cannabis company Tilray, meanwhile, jumped 12.1%.

“Ever since the October lows you’re seeing signs that perhaps investors are getting more optimistic and the tide has fully washed out,” said Jim Paulsen, chief investment strategist at the Leuthold Group.

The S&P 500 is up about 8% since its closing low of 3,583.07 on Oct. 14, while the Russell 2000 index of small-cap stocks is up about 10% over the same time.

Retail investors, meanwhile, have sent a rolling average of about USD 1.4 billion a day into US equities, analysts at Vanda Research wrote last week, adding that they expected the pace of inflows to increase.

Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said the rally in shares of Getty Images is unlikely to be coming from a short squeeze, where bearish investors unwind their bets against a company’s shares, sending them higher.

The stock’s Monday volume, which stood at over 10 million shares after the close, far exceeded the 506,000 shares investors have shorted, he said.

“There is no way today’s price move is due to a short squeeze, it is virtually all long buying pressure,” Dusaniwsky said.

Many meme stocks have been pounded this year as the Federal Reserve tightens monetary policy, sapping investors’ appetite for risk. Shares of GameStop Corp. (GME), which put meme stocks into the spotlight with its epic rally in 2021, are down 24% for the year to date while AMC Entertainment Holdings Inc. (AMC) has fallen 60%.

While certain meme stocks have rebounded, there has not yet been a breakout in the Nasdaq Composite – which is down nearly 30% this year – that would suggest a broad return of investor risk appetite, said Art Hogan, chief market strategist at B. Riley Financial.

Instead, much of the recent broad gains in the market have coincided with a fall in Treasury yields, suggesting that the bond market and the Fed will largely dictate the direction of the market over the remainder of the year, Hogan said.

The central bank is widely expected to increase benchmark interest rates by 75 basis points on Wednesday, continuing its most aggressive rate hiking cycle since the 1970s.

“We’re on pins and needles to see if Powell will say anything that suggests they will taper the size of rate increases going forward,” Hogan said, referring to Federal Reserve Chair Jerome Powell. “If that’s the case that would further tamp down Treasury yields and create a tailwind for equities.”

(Reporting by David Randall in New York; Additional reporting by Lewis Krauskopf in New York; Editing by Ira Iosebashvili and Matthew Lewis)