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Resurgent risk appetite among some investors is fueling rallies in the shares of so-called meme stocks after a crushing year for equities.

Notable moves include a 45 per cent surge since the start of January in the shares of Bed Bath & Beyond. The company’s shares hit a three-decade low at the start of this month when the retailer warned it could seek bankruptcy protection.

The retailer’s shares were up further prior to Friday, when they fell 30 per cent after the New York Times reported the company is in talks with private equity firm Sycamore Partners for the sale of its assets as part of a possible bankruptcy process.

Carvana Co shares, meanwhile, are up 48 per cent this month amid heavy short interest, while shares up Revlon Inc are up nearly 28 per cent. Shares of older meme stocks have joined in the rally, with GameStop Corp up nearly 11 per cent and AMC Entertainment Holdings Inc up nearly 25 per cent.

A 1,600 per cent rise in shares of GameStop in early 2021 first put the spotlight on meme stocks and the retail investors that helped drive many of their rallies as they coordinated in forums such as Reddit’s WallStreetBets. Though many of those initial rallies have since sputtered, meme stocks have seen a number of short-lived rebounds since then, often coinciding with resurging risk appetite in broader markets.

Signs of easing inflation that some investors believe may push the Federal Reserve to end its rate increases sooner than projected appear to be contributing to the latest moves in meme stocks while also helping push up the S&P 500, which is up 4.1 per cent this year. The index fell more than 19 per cent in 2022.

“When we get a little bit of easing in inflation expectations … risk appetite comes back on and retail investors tend to pile into [meme stocks] in hopes of this lottery-like payoff,” said Garrett DeSimone, head of quantitative research at OptionMetrics.

Meanwhile, the Cboe Volatility Index, known as Wall Street’s fear gauge because it reflects demand for downside protection, was recently at 18.1, its lowest level since January 2022.

“The rally in risk assets has carried meme stocks in its wake,” said Jason Benowitz, senior portfolio manager at CI Roosevelt.

Also, “investors who sold for tax reasons in late 2022 might be reinvesting in early 2023,” he said.

Analysts at Vanda Research noted that January and February tend to be among the strongest months for retail inflows.

“Moreover, retail investors tend to rev up their purchases heading into the earnings reporting season, as heightened volatility presents more opportunities for attractive returns,” Vanda’s analysts wrote.

Market participants are quick to warn that similar rallies in meme stocks - as well as broader markets - have crumbled in the last year. GameStop shares are down more than 75 per cent from their peak, while Bed Bath & Beyond shares, which surged to above US$20 last year, quickly reversed those gains. A number of bounces in the S&P 500 last year also crumbled.

Despite the renewed buying from retail investors, “the hurdle to reach previous net-flow highs looks difficult, and any meme stock mania is poised to be short-lived, in our view,” Vanda analysts wrote.

-- Medha Singh, Reuters

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The Rundown

No, the 60/40 portfolio isn’t dead - but here’s an even better idea

Economists David Rosenberg and Marius Jongstra disagree with any notion that the 60/40 asset mix is dead. In fact, their work reveals that having bond exposure provides superior risk-adjusted returns over time and that this tweak to the 60/40 asset mix between stocks and bonds might even work better.

Plan to invest in telecoms? There two stocks stand out

The late, unlamented 2022 was a ho-hum year for Canadian telecommunications stocks. The S&P/TSX Communication Services Index was down 4.7 per cent for the year, although with dividends added the sector virtually broke even. What’s in store for the year ahead? Gordon Pape has some thoughts on which telecom stocks deserve your investment dollars.

Be wary of dividend-paying stocks with extremely high yields

Income investors love their dividends and a portfolio containing only the dividend-paying stocks (and trusts) in the index climbed by an average of 9.1 per cent annually from the end of 2001 to the end of 2022. The dividend payers, as a group, enjoyed above-average returns over the period. But how high of a yield should investors be targeting to maximize their long-term returns? Norman Rothery found out.

Also from Norman Rothery: Three dividend portfolios worth considering, plus others to keep an eye on

Intrigued by banks, pipelines and railways? Here’s a one-stop investment for 2023

Canadian banks, oil producers, railways and pipelines look like fine sectors to ride out the economic turmoil ahead, given their mix of reasonable valuations, strong cash generation and rising dividends. So, why not grab them all with a fund that tracks the S&P/TSX 60 Index? David Berman argues the case.

An aging work force can be good news

One reason to think an economic downturn this year will be mild is Canada’s rapidly greying work force. Even if economic growth grinds to a temporary halt, the impending exodus of many of these people from the labour force should continue to open up opportunities for younger workers. And as Ian McGugan explains, that has implications for investors.

An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022

The Two-Minute Portfolio is a continuing experiment to see if you can invest successfully in the Canadian market simply by spreading your money equally into the two largest dividend-paying stocks in each of the 11 sectors of the S&P/TSX Composite Index. The results of 2022 provide further evidence of the 2MP’s relevance for a certain kind of investor. Rob Carrick explains, and outlines the stocks to hold for this strategy to work for 2023.

Gold prices seen rising towards record highs as rate rises near end

Gold prices are expected to rise towards record highs above $2,000 an ounce this year, albeit with a little turbulence, as the United States slows the pace of rate hikes and eventually stops increasing them, according to industry analysts.

U.S. investors hunt for gains in foreign stocks

Some professional U.S. investors are looking abroad to capture better stock returns in the coming months, betting European and other international stocks hold more enticing valuations after a long period of U.S. dominance.

Others (for subscribers)

The most oversold and overbought stocks on the TSX

Monday’s analyst upgrades and downgrades

Globe Advisor

Why market predictions fail and how to prevent falling for them

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Ask Globe Investor

Question: Is HXT a better alternative to the venerable XIU? It seems to have a lower MER and automatically reinvests dividends (so you don’t see any DRIP activity on your account). Is there a catch? - David K.

Answer: XIU-T is the symbol for iShares S&P/TSX 60 Index ETF. It invests in a portfolio of large cap Canadian stocks and has been around since 1999. Performance has been good, with a 10-year average annual compound rate of return of 8.99 per cent to the end of November. The management expense ratio (MER) is 0.18 per cent.

HXT-T is the trading symbol for the Horizons S&P/TSX 60 Index ETF. That’s the same index as XIU tracks so it should be no surprise that both hold the same securities in roughly the same proportion. HXT has a slightly better 10-year average annual return, at 9.12 per cent, which would appear to be due in large part to its lower MER of 0.04 per cent. Note, however, that the low management fee is due in part to a rebate of 0.04 per cent that could be withdrawn. Even without that, however, HXT will still be cheaper. (Also note that HXT has a total return approach, which means dividends are built into share price gains and not paid in cash. There’s a tax advantage in non-registered accounts.)

This is an example of how a lower fee can give you a slight edge in returns. It’s not a lot but over the years it adds up, especially on large amounts of money.

-- Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question in the subject line.)

What’s up in the days ahead

Why are shares of Hydro One at record highs while shares in other utilities are in the doldrums? Tim Kiladze will have some answers.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff