Source: Zhitong Finance

The US stock market and cryptocurrencies have soared to record highs. At the same time, meme stocks are soaring: the S&P 500 index hit a new high, Bitcoin reached a record high of $68,000, and the stock price of GME.US (GME.US) rebounded to $60; even the unprofitable social media company under Donald Trump soared after it went public. This scenario is hard not to recall the financial asset climax of the “recovery of everything” in the fall of 2021, but those predicting that retail trading will return to its exciting heyday may have gone too far. Researchers are already questioning how long the current five-month rise in the stock market will last.

Additionally, analysts and investors said that the way people trade in 2024 and the economic environment in which they trade has changed. Today, there is an opinion that in this new age of adventure, retail traders are more sophisticated, less emotional, and more strategic.

“Retail Trader 2.0”

Retail investors have been watching Truth Social's parent company since 2021, when Trump Media & Technology Group Corp. and Digital World Acquisition Corp.'s special purpose acquisition company announced plans to merge. As the much-anticipated deal was completed on Monday, Trump's fame and stock market bullishness drove shares of the newly merged company to soar. The stock fell 6.4% on Thursday after three consecutive days of sharp gains.

Some posts on Reddit seem to reveal what is known as “dumb money” at play here. Whether it's the criminal case facing the former US president, the huge fines New York is about to face, or the company's weak fundamentals, supporters of Trump's presidential candidate and everyday investors are investing in the company. But traders know it can be a tumultuous journey. Retail investors have experienced the sharp rise and fall of many meme stocks before, and want to enter and exit quickly.

Sam Nofzinger, general manager of brokerage at investment platform Public, said: “We've gone beyond the point where retail investors don't know what they're doing. They are second-edition retail investors, just a little more sophisticated.”

Focus on “Fear of Missing Out (FOMO)”

One of the changes analysts are seeing in the retail investor sector is a shift from earnings to risk. As interest rates rise, investors worry about rising geopolitical risks, and the possibility of an economic recession, all asset gains that peaked in 2021 fell to a low point in 2022. In this environment, rising bond yields have dampened retail interest in riskier assets. Americans have bought billions of dollars in savings bonds, and have even ventured into corporate bonds.

But things changed last year. Although analysts have always predicted, the US recession never came. The market rose, and retail investors began to realize that they needed to switch back to the stock market. “They finally surrendered,” Nofzinger said. They said, 'Did you know? A recession is not coming. Stocks are rising. Why do I need cash? Let me buy some AI stocks, some of these growth stories, and then try investing. '”

That doesn't mean a widespread meme stock frenzy is on the horizon. Instead, experts saw a more concentrated fear of missing out (FOMO) emotion centered around artificial intelligence. Trump's company isn't an artificial intelligence story, but it is being driven by the market in the current wave of tech boom. Second, the recently listed retail forum Reddit (RDDT.US) positions itself as a large-scale language model with the potential to train artificial intelligence. Intraday investors are also scrambling to buy shares in artificial intelligence company Nvidia (NVDA.US), just as they used to chase Tesla (TSLA.US). Susannah Streeter, head of capital and marketing at investment platform Hargreaves Lansdown, said: “The FOMO effect is still strong, but it has a different driver, which is artificial intelligence.”

However, she pointed out that there may be “excessive enthusiasm” in the market, and it is difficult to draw an accurate trajectory of artificial intelligence. Researchers at J.P. Morgan share the same opinion. They are worried that so many investors have recently poured into the stock market, and if large investors begin to restructure their positions, the market will soon experience a sharp correction. Meanwhile, Reddit, one of the stocks driving the 2021 craze, also showed fluctuations.

However, Ben Laidler, a global market strategy analyst at eToro, believes that meme stocks will not reappear on a large scale like 2021, partly because the recent crypto winter is over and retail investors are turning to crypto assets. With institutional funding to buy Bitcoin for its recently launched ETF, and a planned “halving” aimed at limiting the issuance of cryptocurrencies, Laidler believes that the recent rebound is more a typical “tight supply and demand” than a result of pure retail speculation. Laidler said, “I don't think old meme stocks will come back. Retail investors have largely left and are back in the cryptocurrency space.”

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