Steve Sosnick on Meme Stock Comeback and Investor Risk Appetite

The Resurgence of Meme Stocks

• 📈 Meme stocks are experiencing a comeback, with companies like American Eagle, Kohl's, and GoPro showing double-digit gains this week.
• 💡 This trend indicates a growing undercurrent of retail enthusiasm and a willingness among individual investors to embrace risk.
• 🎯 The current market behavior suggests a "flight to crap," where investors are seeking higher returns by taking on increasingly more risk.

Investor Strategy Amidst Risk-On

• ⚠️ Investors are advised to avoid chasing the next meme stock on the open, as this has proven to be a poor strategy.
• 💰 Instead, a safer approach involves focusing on defensive sectors, cash, or short-term fixed income, which are currently offering real returns.
• 🏠 Sticking to traditional investment principles, such as looking for stocks with dividends and solid earnings, is recommended over chasing speculative plays.

Market Signals and Historical Parallels

• 📊 The current meme stock surge mirrors behaviors seen in late 2021, a period preceding a significant market downturn.
• ⚠️ While not an immediate disaster signal, this pattern suggests that markets can punish investors at inopportune times when confidence is high.
• 🧠 Investors should be perceptive to the possibility that the market can be tricky and unpredictable.

Portfolio Management and Risk Assessment

• ⚖️ It's crucial for investors to assess if they are "over their skis" by being too heavily weighted in certain risky stocks or sectors.
• 🚫 Avoid speculative areas like certain crypto-related companies, treasury companies trading at a premium, and SPACs.
• 📉 Consider purchasing hedges while the VIX is below 15, as it presents an opportune time to do so.