Rise of the Planet of the Apes: How Social Media Moves Markets
Economist John Keynes once attributed the movement of financial markets to “animal spirits”. We’ve seen some semblance of these animal spirits over the past half-year with the rise of GameStop’s share price.
GameStop – once one of the world’s largest games and electronics retailers – was on a path of decline, unable to compete against the rise in online video game sales. Then a group of “Apes”, as they call themselves – which seems like an almost ironic hat tip to Keynes’ animal spirits – from Reddit’s r/WallStreetBets community banded together and moved markets. Their goal was a short squeeze. This is where a heavily shorted stock or security’s price rapidly and unexpectedly increases, causing all the investors who had been short-selling to buy back the shares they had sold, thereby covering their shorts and cutting their losses. GME, the ticker symbol for GameStop, was everywhere online and on social media as their share price rose from US$4.28 per share in January 2020 to US$347.51 per share a year later. That is a year-on-year increase of over 8000%. All started by a group of people on Reddit who wanted to stick it to the man and take down the big hedge funds – many of which had been shorting GME.
So, were the Apes successful? It seems so. A number of hedge funds that had been shorting GME experienced unexpected losses in January after the short squeeze. To name a few, Melvin Capital lost 53% of its investments in January while D1 Capital Partners lost 20% of its capital.
A similar Reddit-fuelled phenomenon has taken place with AMC Entertainment Holdings (AMC), an American movie theatre chain. AMC’s share price surged in January from around US$2 at the start of the month to US$19.90 by 27 January.
Using Sprinklr’s Listening tool, we can monitor what people have been saying on social media about these “meme stocks”. We can see how a conversation and initiative to rally behind GME amongst the r/WallStreetBets community has grown so large that it has warranted the creation of GME Megathreads and Daily Discussion threads, where the amount of comments occasionally reach the tens of thousands. The movement has also transcended Reddit. Apes are now seen on social channels like Twitter, Instagram, and Facebook, encouraging others to buy and hold. In true internet fashion, they’ve even developed their own lingo, slang, and memes with words like “hodl” and “superstonk”.
What happened to GME and AMC is an interesting case study in the power of not only investor sentiment – how the common investor’s anger and excitement can move markets – but also social media. It has shown the prevalence of social media even in the finance industry and how it has surpassed its function in communication. Social media is no longer just a tool for connecting with others; it is a source of entertainment, information, and game-changing movements.