What happened

Bad news for Bed Bath & Beyond (NASDAQ:BBBY) shareholders: This morning, two separate Wall Street banks downgraded the stock, with Raymond James cutting its rating from strong buy to merely market perform (i.e., neutral), and Swiss banker UBS cutting the stock from neutral to sell.  

Good news for Bed Bath & Beyond investors: No one cares. Bed Bath stock is up a stellar 13.8% as of 2 p.m. EST.

Stock up glowing green arrow climbs on a stock screen

Image source: Getty Images.

So what

This isn't the way Wall Street downgrades ordinarily work.

Hearing an investment bank like Raymond James declaring Bed Bath & Beyond's valuation "stretched" (reports TheFly.com), or hearing UBS warn of the company's "deep" challenges that "will take time to fix" in the midst of a recession that has people spending less on home goods and furnishings, ordinarily sends investors running for the hills. Hearing UBS proceed to recommend investors sell immediately and take their profits would ordinarily provide an additional kick in the pants.

That's not the way things are working out today, though, and the reason, explains yet a third investment bank -- KeyBanc this time -- is that "the Reddit message board WallStreetBets" has been encouraging momentum traders to buy shares of heavily shorted stocks such as Bed Bath & Beyond, in hopes of starting a short squeeze phenomenon that will drive the stocks higher regardless of merit.

Now what

And it seems to be working. We've already seen how the WallStreetBets, aka "WSB," phenomenon can push a heavily shorted, terminally ill mall-based retailer like GameStop (NYSE:GME) stock dramatically higher in a short period of time. (GameStop's up another 53% today, by the way, although the chances that its business got 53% better overnight are pretty much nil.)

Something similar seems to be happening at profitless space tourism company Virgin Galactic Holdings (NYSE:SPCE), which is up nearly 20%. Clearly, there's something to the idea of squeezing the same Wall Street banks, which are panning your stock, by buying it anyway.

That doesn't mean the banks are wrong, though -- just early. The risk is still there, even if the momentum traders haven't noticed it yet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.