Shares of consumer-oriented meme stocks AMC Entertainment (AMC 0.44%), fuboTV (FUBO -1.85%), and Allbirds (BIRD 0.89%) plunged on Wednesday, down 9.3%, 12.3%, and 7.2%, respectively, as of 12:10 p.m. ET.
Heavily shorted meme stocks like AMC and fuboTV had quite a run over the past month, as did many newly public companies like Allbirds that had gone public via a special purpose acquisition company (SPAC). After the first-half stock rout, these companies' beaten-down stock prices combined with high short interest brought meme traders back into the fold in July and August.
However, these types of stocks are volatile, both on the way up and the way down. Today, it appears as though a risk-off mentality is permeating the markets, with inflation data in the United Kingdom surprising to the upside, U.S. retail data disappointing, retailer Target (TGT 1.36%) reporting worse-than-expected sales, and general anxiety before the Federal Reserve's July minutes come out this afternoon.
Finally, fuboTV received a downgrade from a Wall Street analyst following its investor day yesterday, taking some of the air out of this high-flying stock.
It should be noted that the large moves today came after big run-ups in meme stocks, especially for AMC and fuboTV. Even after today's pullback, fubo is up more than 153% month to date, with AMC up about 70%. Allbirds, despite a big post-earnings pullback earlier this month, is still up more than 2% on the month.
After such a big run-up, investors were likely looking for excuses to take profits, and Wednesday had several reasons for that, when taken together. First, in contrast to the U.S., the United Kingdom continued to post rising inflation, hitting 10.1% in July versus the year-ago period. Even the U.K.'s "core" inflation rate of 6.2% was materially higher than the 5.8% mark posted in June.
None of that is particularly good for the European or U.K. economy, as inflation seems to be getting more entrenched there. While each of the above companies are primarily U.S. companies, AMC actually has a significant European theater business, including in the U.K. And Allbirds distributes internationally, including in Europe and the U.K. Meanwhile, while fubo doesn't currently offer its service in the U.K., it is beginning to expand to Europe, with operations in Spain and France.
Back in the U.S., major retailer Target reported earnings today, missing both revenue and earnings expectations. Remember, yesterday's better-than-feared results from Walmart fueled a consumer discretionary stock rally yesterday, on the theory that the U.S. consumer was in better shape than feared. However, it's possible that Walmart's success is coming from higher-end consumers "trading down" to lower-cost retailers like Walmart. That wouldn't necessarily be a good thing for consumers splurging on a night out at the movies, a nice pair of Allbirds shoes, or for advertising budgets, which affect fuboTV. So, retail and consumer discretionary names fell back to earth after yesterday's gains.
U.S. retail sales figures for July also came in slightly lower than forecast this morning, although not by much. July retail sales came in flat, slightly behind expectations of a 0.1% increase. Excluding fuel and autos, consumer spending came in at 0.7% month over month, versus June's 0.8%. While not a material miss, these retail sales figures weren't helping to offset the other news.
In terms of company-specific developments, fuboTV also held its investor day yesterday. The beaten-down stock rallied in a big way going into the event, so there may be some "sell the news" selling happening here.
Additionally, Wedbush analyst Michael Pachter downgraded the stock today, saying, "Despite all of the company's bold targets relayed at its investor day, fuboTV needs to raise capital and cut cash burn rapidly or it will be out of cash within a year... While we are confident that they can do both, it is uncertain how dilutive the capital raise will be and how rapidly their cash burn will improve."
With the economy flirting with a recession and analysts divided over how big a downturn we will have -- combined with speculative, money-losing stocks having fallen so much this year -- investors should expect these stocks to be highly volatile as they search for direction. Any hint of good news or relief on the inflation front could lead to a massive short-covering rally. On the other hand, the longer this slowdown persists, the more money-losing companies will face pressure.
That's because when a company is losing money, it's "on the clock" to either become profitable or raise more cash. Now is a really, really bad time to be raising money, so these companies may need to rein in spending, which could affect growth. AMC, for its part, is trying to do an end-around its shareholders by issuing a new class of preferred stock under the ticker APE in an effort to raise more capital.
Basically, these types of stocks remain highly speculative plays on good market news. The fundamentals of each remain highly uncertain, amid rising inflation and slower consumer spending. Moreover, the need to potentially raise more money in the future is another risk hanging over each. They remain buys only for those who intend to speculate, and not for older or longer-term-oriented fundamental investors.