It was a wild 12 months
Shoppers wait for a GameStop store to open at Tysons Corner Center in Tysons, Va., November 27, 2020.
Hannah McKay | Reuters
An army of Reddit traders, triple-digit profits, and a $ 100 million deli: In a wild trading year, the unexpected became the norm in the stock market.
This year’s activity coincided with a surge in new investors entering the world of stock trading to ride the historic market boom. Remote work, stimulus checks, and higher personal savings, as well as social media chat rooms have only accelerated the retail boom.
“If there was ever any doubt about who wielded power in the stock market, US private investor stole the show in 2021,” said Tony Pasquariello, global head of hedge fund coverage at Goldman Sachs, in a statement. “After a year of more inflows than the previous 25 years combined, how far this cohort stays in the fight is a big open question for early 2022.”
Meme stocks shock Wall Street
The meme stock saga began just days in 2021 when retailers joined forces on Reddit’s WallStreetBets forum to offer GameStop’s shares, which were heavily shorted by hedge funds. The individual buyers sparked massive short selling of hedge funds, which fueled the rally.
Trading volume for GameStop and meme stock darling AMC Entertainment has faded. According to FactSet, around 2.5 million GameStop shares change hands every day on a 30-day average as of December 22nd, a fifth of them in January.
Reddit traders also seem to be less focused on GameStop and AMC, which were the two most mentioned tickers on WallStreetBets this year, according to data tracker YoloStocks.
WallStreetBets mentions for both peaked on Jan. 28 at around 267,000 for GameStop and 47,000 for AMC, but on typical days over the past few months there have been hundreds, not thousands, of mentions.
Despite the recent market sell-offs, with GameStop and AMC each falling to their lowest levels in months last week, both stocks are up about 716% and 1,260% respectively this year.
Performance varies for other stocks known on Reddit forums. BlackBerry is up 40% over the year while Tesla is up 48%. Clover Health and Bed Bath & Beyond are down about 75% and 13%, respectively.
A $ 100 million delicacy
While the meme stock mania caused a stir this year, perhaps the strangest investment phenomenon is the tiny New Jersey deli that once had a market cap of more than $ 100 million.
Hometown International, with its Paulsboro, NJ-based Your Hometown Deli as its sole location, achieved a staggering market value earlier this year amid a trading frenzy. The delicatessen business had combined sales of just $ 35,748 for the past two years, according to the securities.
Hedge fund manager David Einhorn highlighted this deli as an example of speculative trading activity.
“Somebody pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey… HWIN reached a market cap of $ 113 million on February 8th. The largest shareholder is also the CEO / CFO / Treasury and a director who also happens to be the wrestling trainer of the high school next to the deli. The pastrami has to be fantastic, “Einhorn said in a letter to customers in April.
It was also the year of the SPACs.
Funds raised through U.S. acquisition companies hit a record $ 162 billion in 2021, almost doubling from $ 83.4 billion last year, according to data from SPAC Research.
SPACs raise capital through an IPO and use the cash to merge with a private company and get it public, typically within two years.
The market was scorching hot in the first quarter, with new deals seeing an average increase of 6.5% on day one. Retail investors represented 46% of trading volume in SPACs on the Bank of America platform in January.
Now the industry has cooled down in the face of a myriad of challenges ranging from regulatory pressures to the prospect of higher interest rates to the increasingly competitive environment for doing business.
Still, a special deal launched in the fourth quarter caught a lot of attention. The Digital World Acquisition Corp. announced in October that it would bring former President Donald Trump’s planned social media platform to the public. The news sparked an 800% rally in the stock for two days, and the SPAC is still up more than 400% for the year.
Popular investor Chamath Palihapitiya said on its October podcast, “All-In with Chamath, Jason, Sacks & Friedberg,” that Digital World Acquisition was “a publicly traded NFT from Donald Trump.”
Note: FactSet is the data source for the graphs at the top of this story and the information is current as of the close of market on December 22nd.