t's a perfect storm for the stock market this year: geopolitical turmoil, high inflation, and higher interest rates in 2022.
And that's driven out many market newcomers, including "meme" stock investors, whose holdings soared and swooned from social media.
"This is a meme stock flush-out, especially for those who were leveraging up to buy everything from bitcoin to NFTs and tech stocks," said Paul Murray, founder of PTM Wealth Management in North Wales, referring to the popular cryptocurrency and non-fungible tokens, or digital data stored in a blockchain.
There are two broad shifts to blame for this month's sell-off.
First, the Federal Reserve's rate hikes mean that interest rates are higher and borrowing money is no longer cheap.
Second, overvalued technology names generally are selling off, speculative "meme" stocks, in particular, such as video game chain GameStop and AMC, the movie-theater chain. Starting in 2020 and into last year, the two companies' share prices went for a wild ride as anonymous chatroom investors, eager to gamble during the pandemic lockup, poured in money.
"The last 2 1/2 years have just put this effect on steroids," noted Spencer Jakab, a former equity analyst who edits the Wall Street Journal's "Heard on the Street" column and just penned the tome The Revolution That Wasn't: GameStop, Reddit, and the Fleecing of Small Investors, published in February.
Now, the pandemic-era newbies are feeling the pain of all their gains being wiped out.
"Markets are challenging for everyone, but there is plenty of anecdotal evidence that the greatest losses seem to be accruing to the newest investors," added Jakab, meaning those who began pouring in money in 2020.
Morgan Stanley in new research found that all the pandemic trading gains by retail investors were wiped out as of last Friday, May 6, even though broader stock market indices, which measure returns that accrue to a buy-and-hold investor, remain higher since January 2020.