What’s going on here?
Hedge funds drastically cut their bearish stock positions this week, marking one of the most notable shifts in three years amid a sharp rally in US meme stocks.
What does this mean?
A Goldman Sachs note published on Wednesday revealed that hedge funds unloaded positions on the most actively shorted stocks tracked by the Goldman Sachs index, including GameStop and AMC. This dramatic move was triggered by renewed interest from ‘Roaring Kitty,’ a central figure in the 2021 meme stock rally. His influence prompted hedge funds to quickly repurchase stocks to cover their short positions, propelling the Goldman Sachs index up over 5% during the week. However, by Friday, gains had tempered, with the index up just 0.5% for the day.
Why should I care?
For markets: Meme mania strikes again.
Systematic hedge funds that utilize algorithms to detect market trends shifted significantly to long positions on Monday but encountered a setback with a 1.1% loss by Tuesday, marking their second-worst day of the year. Despite these fluctuations, they remain up 11.6% for the year to May 14. Meanwhile, hedge funds that take positions based on fundamental factors experienced a slight decline of 0.3% on Wednesday, yet they are still up 7% for the year so far.
Zooming out: The roller coaster of meme stocks.
Thursday saw significant volatility with GameStop shares plunging 30%, closing at $27.67 after hitting a high of $64.83 on Tuesday. AMC shares also tumbled 15.3%, closing at $4.64. This volatility underscores the unpredictable nature of meme stocks, driven by retail investor sentiment and social media influence rather than traditional market fundamentals.
