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Volatile weeks for meme stocks

13th August – 19th August 2022 | Another week in the markets

S&P 500 Nasdaq VIX DJIA Russell 1000 NYSE
4,228.48 12,705.22 20.60 33,706.74 2,323.53 15,588.32
-1.21% -2.62% 5.48% -0.16% -1.46% -1.37%
           
Nifty 50 Gold Silver Brent crude USD-INR EUR-INR
17,758.45 $1,760.30 $18.97 $96.09 79.92 80.25
0.34% -3.22% -8.98% -1.96% 0.37% -1.75%

Source: MarketWatch

Hello Saturday,

This week US stocks snap out of Wall Street’s summer rally, volatile weeks for meme stocks continue, and July data reveals retail sales to be flat. 

  • Meme stocks in reverse as Bed Bath & Beyond plunges 44.6%
  • Streaming overtakes cable TV in July in the US
  • Snap scraps the development of its flying drone camera Pixy
  • Apple Pay usage increased massively since the pandemic 
  • Junk food stocks surge as people are more stressed and exhausted

Taking stock | Of BBBY and bathwater | Swimming upstream | Pixy dust | Paydirt | On the junk | Invest wisely

Taking stock

As interest rate hike fears surfaced again, major indices ended the week lower, snapping out of their four-week win streaks. For the week, S&P 500 slipped 1.21%, Nasdaq fell 2.62%, and Dow Jones dropped 0.16%. Despite this, many investors are hopeful for a bounce back. 

Of BBBY and bathwater

Meme stocks are stocks that go viral on a social media platform like Reddit and then trade at prices significantly higher than the company’s value based on its financial fundamentals. As a meme stock, Bed Bath & Beyond has seen its shares surge more than 60% in the past week and almost 250% in the past month. The fact that Ryan Cohen, chairman of GameStop, invested in the company a few months ago and held a stake of nearly 10% was the green flag for meme investors. 

However, this week on Wednesday, a Securities and Exchange Commission filing revealed that Cohen RC Ventures dumped the stock of Bed Bath & Beyond and also sold its call options. This led to the company’s stock falling 44.6% in extended trading. Bed Bath & Beyond was not the only stock in the meme stock craze of 2021. In fact, GameStop also saw its share price surge by over 30 times at the beginning of last year. While meme stocks rallied again in the past month, by nature, they are highly volatile, and nobody knows when the frenzy could die.

Swimming upstream

According to data by Neilsen, in July, Americans spent more time on streaming services such as Netflix, HBO Max, and YouTube than they did on cable television. This marks the first month ever that streaming content has overtaken cable TV in terms of viewing time. 34.8% of the total TV-viewing time in July was dedicated to streaming services, while 34.4% was captured by cable TV. Compared to the same time last year, people spent 23% more time on streaming services and 9% less time on cable. This is yet another sign of the streaming industry growing stronger.

A graph on share of US TV time by format

Pixy dust

Snap, the parent company of the social media app Snapchat, is bringing a pause to the development of Pixy, its flying camera drone first announced in April this year. This $230 drone camera was introduced to allow Snapchat users to take pictures from unique angles. Snap has been trying to break into the hardware industry for quite some time. It even calls itself a camera company on its website. In 2016, it had launched spectacles and sunglasses with built-in cameras – a loss-making product that led the company to write down almost $40 million in 2017

While Snap is struggling on the product front, its core ad business isn’t doing all too well either. In a challenging economy, Snap, like all other social media platforms, is witnessing plummeting ad sales. This year, the company’s shares have lost almost three-quarters of their value, and the company saw a net loss of $422 million in the second quarter.

Paydirt

When Apple released its new service Apple Pay in 2014, both iPhone users and Wall Street analysts were sceptical. The adoption of the service was unimpressive in the first few years, but it has grown massively over time. In 2016, the number of iPhone users that had the service activated was 10%. This grew to 20% in 2017, 50% in 2020, and is now around 75%

When the service was first introduced, only 3% of retailers in the US were accepting it. The US was lagging when it came to the adoption of contactless payments. Now, about 90% of retailers across the US accept Apple Pay. The revenue Apple collects in terms of fees from banks whose cardholders use this service is less than 1% of the company’s total revenue. However, Apple Pay is just one of Apple’s many innovations that keeps this giant successful and improves the overall iPhone experience. 

On the junk

The last two years have been stressful with the pandemic, surging inflation, geopolitical crisis, a looming recession, and more. Given this, the stocks of junk food companies are surging in the US. For instance, in a market that is overall down 10%, Hershey’s stock is up 19%, while Coke is up almost 10% this year. While inflation has impacted retail sales, this is not true for products such as candy, chips, cola, etc. 

In Japan, on the other hand, the pandemic, an ageing population, and a lowering birthrate have led to a significant change in people’s consumption style. For instance, fewer and fewer people are consuming alcohol. This has led to a decline in liquor tax revenue collected, and the government is trying to find innovative ways to boost alcohol consumption in the younger generation. 

Invest wisely 

Since the downturn in mid-June when the S&P 500 entered the bear market, stocks have been doing well. With a 9.2% return, last month marked the best July that S&P 500 has had since the Great Depression. While this summer’s rally signals to many investors that a bull market is close, some also believe that it’s too early to let out a sigh of relief. Hence, it’s best to continue hedging your portfolio risk by diversifying across asset classes and geographies and maintaining an investment strategy that aligns with your risk profile. Download the Appreciate App to access a wide range of high-performing US stocks and ETFs today!

Warm regards,
Another week
in the markets

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