What happened
Meme stocks are running higher this morning, even as the market falls. Shares of GameStop (GME 0.78%) and AMC Entertainment (AMC -2.18%) were rising 5% and 2.8%, respectively, while the movie theater operator's preferred shares AMC Preferred Equity (APE) went from an early gain to a 1% loss as of 10:34 a.m. ET on Monday.
There was no news to account for the initial jump -- GameStop soared out of the gate, and market circuit breakers kicked in to temporarily halt trading on the stock -- but the shares then began to lose steam. In contrast, the S&P 500 was down 1%.
Image source: Getty Images.
So what
Volatility is inherent in meme stocks, which typically trade more on social media mentions than on business fundamentals. Indeed, GameStop is the most talked-about stock on the Wall Street Bets subreddit this morning, which could have the follow-on effect of bringing AMC and the preferred shares along for the ride. GameStop and AMC are the two meme stocks most associated with the phenomenon.
AMC's problem in particular is movie theater attendance continues to be far below pre-pandemic levels, reflecting the incursion of streaming services on consumers wanting to go to the cinema, as well as Hollywood's continuing decline in wide-release stand-alone theater movies.
It distributed the APE shares to investors as a vehicle to raise money, but AMC's financial woes, including its heavy debt burden, are weighing on both stocks.
Now what
Many people who invest in these particular meme stocks hold out hope that some external event will materialize that causes a short squeeze to send their stocks on a meteoric trajectory.
While there is usually no gainsaying their conviction, it's important to warn newer investors who may get caught up in the mania about the very real and high risks associated with putting any money into these stocks.
