That didn't take long. Investors' speculative "animal spirits" are back — and back big — just months after the throes of 2022's S&P 500 bear market.
Signs are mounting that individual investors, who fanned markets to all-time highs in early 2022, are piling back in. It's either a welcome sign of a recovery, or evidence complacency is too high, depending on who you ask.
"After the bloodbath that reckless speculators suffered last year, you might think that they'd learned at least a few lessons, but no," said Whitney Tilson, of Empire Financial Research.
Some of the signs of a comeback in speculation are undeniable.
The 'Meme' Stock Comeback
Here's perhaps the biggest surprise of them all. Investors are piling into "meme" stocks popularized on online forums again. It's amazing as these speculative stocks tanked in 2022, dashing many young investors' hopes.
But they're back in a big way, albeit from a lower base. The Roundhill Meme ETF, which contains 25 buzz-filled stocks, is up more than 31% just this year. The ETF is riding huge gains by some of its members, many of which looked destined to vanish completely. One example is Coinbase Global, a cryptocurrency trading platform. Shares are up more than 102% — just this year. Keep in mind the stock tanked more than 80% last year.
It's not just one lucky meme stock, though. All but three of the stocks in the Meme ETF are up this year. And they're up big: nearly 45% apiece on average. And that doesn't even include new favorite Bed Bath & Beyond, a struggling seller of home products. Shares are still up more than 19% this year, despite late Monday announcing an aggressive financial move that dilutes investors' positions. The stock still has a market value of $681 million, or roughly 3 a share.
"In a rational world, BBBY shares would be trading for a dime," Tilson said.
Last Year's 'Trash' Becomes Treasure
Savvy investors know to look for strength in new leaders. But in this market, including in the S&P 500, just the opposite is happening.
Stocks all but left for dead in 2022 are surging back with a vengeance this year. All 10 of the top-performing S&P 1500 stocks this year got pounded in 2022. These stocks, up more than 70% on average, tanked more than 67% in 2022. For instance, Sotera Health is up more than 117% this year making it the top stock in the S&P 1500. But last year, no one wanted to touch it, as shares dropped 65%.
It's important to note none of these worst-to-first stocks are anywhere near their old highs. In fact, on average, the top 10 stocks in the S&P 1500 this year are still off an average 42% from their all-time highs. But that doesn't bother any investors piling in this year.
Even Cathie Woods' ARK Innovation ETF, emblematic of individual investors' surge into promising stocks in 2022 is having a comeback moment. It's the No. 1 diversified ETF this year, up 35.2%. It's topping even Invesco S&P 500 High Beta ETF, which is chock full of the riskiest S&P 500 stocks.
Day Traders Are Coming Back
Day traders were net sellers in January. But they also increased their market exposure again during the month, says TD Ameritrade's Investor Movement Index (IMX).
Traders aggressively added to positions in Tesla, Rivian Automotive, Ford Motor, Apple and Intel, TD Ameritrade found. Shares of Tesla are up nearly 60% this year, after plunging 65% last year.
"While there's still a ways to go before the IMX score reaches the soaring heights it hit in 2020 and 2021, optimism among retail investors is beginning to creep back up as this year begins," said Shawn Cruz, head trading strategist at TD Ameritrade. "With inflation moderating and volatility projections starting to wane, retail investors are continuing to net sell equities but are also on a whole increasing their market exposure, potentially signaling more appetite for exposure in the months to come."
Even Vanguard's steady-as-it-goes clients, too, were less pessimistic going into 2023. Only 6.2% of Vanguard investors expected a looming stock market disaster. That's down from the 8.2% that did, a five-year high, in the middle of 2022. And Vanguard investors think the U.S. economy will grow the next three years by up to a robust 3%.
It's unclear if the ongoing S&P 500 rally will last. But many investors seem willing to give it the benefit of the doubt.
Big Runs In Meme Stocks
Top performers this year in Roundhill Meme ETF
| Company | Symbol | Year-to-date stock % ch. | 2022 stock % ch. | Sector |
|---|---|---|---|---|
| Coinbase Global | 102.0% | -86.0% | Financials | |
| MicroStrategy | 100.5 | -74.0 | Information Technology | |
| Peloton Interactive | 98.4 | -77.8 | Consumer Discretionary | |
| Virgin Galactic | 70.8 | -74.0 | Industrials | |
| Warner Bros. Discovery | 61.7 | -59.7 | Communication Services | |
| SoFi Technologies | 60.0 | -70.8 | Financials | |
| Tesla | 59.8 | -65.0 | Consumer Discretionary | |
| Spotify Technology | 59.1 | -66.3 | Communication Services | |
| AMC Entertainment | 51.6 | -85.0 | Communication Services | |
| Shopify | 47.9 | -74.8 | Information Technology |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
