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Freshly emboldened retail investors have continued piling into risky assets, supporting a bounce that has buoyed everything from meme stocks to cryptocurrencies despite economic worries and geopolitical uncertainty.

Weeks-long rallies in some of the market’s most speculative names have far outpaced a broader rebound in the S&P 500, despite a selloff on Wednesday that saw the benchmark index shed 0.6 per cent and declines in many of the more comparatively risky assets that have rallied in recent weeks.

Shares of GameStop Corp. and AMC Entertainment Holdings Inc., two companies most closely identified with the meme stock mania that drove astronomical stock price moves in 2021, have nearly doubled in price over the past two weeks after worries over tighter monetary policy and the war in Ukraine slammed stocks earlier this year.

Other moves include a 26-per-cent rally in Cathie Wood’s ARK Innovation, an ETF replete with high growth names, a 19-per-cent jump in cryptocurrency bitcoin and a 36-per-cent rise in electric car maker Tesla Inc. The S&P 500 is on track to finish the quarter with a 3.4-per-cent loss, after swooning as much as 12.5 per cent earlier in the year.

While the rebound has been pinned on everything from quarter-end rebalancing to relief that the Federal Reserve is finally training its sights on inflation, retail investors have definitely played a significant part, with Goldman Sachs forecasting in a recent note that households will continue to deploy some of their US$15-trillion in cash holdings into the equity market.

Retail traders’ net purchases of stocks and ETFs totalled US$5-billion this past week, compared with a one-year average of US$3.4-billion, JP Morgan strategist Peng Cheng said in a note on Wednesday.

“Retail is seeing that speculative trading still works and is still trying to catch the high-flyers of the day,” said Dan Pipitone, chief executive of retail brokerage TradeZero.

For AMC, GameStop and other stocks popular with individual investors, call options, typically employed to express a bullish view on stock prices, have drawn strong activity in recent weeks.

For example, there are 1.8 AMC call options open for every open put contract on the stock, about the most upbeat this number has been since May, 2021, according to a Reuters analysis of Trade Alert data.

AMC was one of the most bought speculative stocks in the past couple of days, analysts at Vanda Research said in a report Wednesday, noting that in the past strong flows into AMC have heralded a broader rally in other less well-known names.

“The average retail investor portfolio has now clawed back a good portion of the (year-on-year) losses, offering some fresh buffer to punt on meme stocks,” Vanda’s analysts wrote.

RJ Assaly, head of business development at artificial-intelligence-driven market screening platform Toggle, said his models – based on an analysis of AMC’s past trading patterns – had predicted the stock rising as high as US$30, a level it touched Tuesday.

Past instances of such bullish signals, in December, 2020, and May, 2021, saw the stock overshoot its predicted price by US$15 to US$30 dollars, he said.

Of course, the volatility associated with meme stocks and many other recent market leaders can be a two-edged sword, particularly for investors who bought them when speculative fervour ran high. GameStop and AMC are still down 52 per cent and 59 per cent from their closing highs from last year, respectively. Bitcoin is off 30 per cent while ARK is down 56 per cent.

So far, that hasn’t stopped some individual investors from betting these speculative names will continue to rise.

Retail traders have been paring buying in the large cap names that were more popular earlier in the year and shifting into more speculative stocks as “younger and more aggressive investors” try to recoup year-to-date losses, Vanda’s analysts said.

“This investor base is now purchasing mainly speculative meme stocks, call options, and cryptocurrencies,” they wrote.

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