GameStop shorts a 'small drop in the bucket' of wider economy

Meme stocks are experiencing a boost following the online return of "Roaring Kitty," best known for the GameStop (GME) short squeeze of 2021. Newton Investment Management Chief Investment Officer and Head of Equity John Porter joins Catalysts to break down what the meme stock rally could mean for the market (^DJI, ^GSPC, ^IXIC).

Newton reflects on the 2020-2021 meme stock rally, explaining that "there was an undercurrent of liquidity there that was an important catalyst for what was going on." He adds that the surge over the last day may be a similar case, but only time will tell.

However, Newton warns, "As a fundamental, long-term investor, I'm certainly cognizant of any short-term volatility and trying to understand if there's a turning point in the market that I need to have a better grip on."

He says that the Fed is likely watching the meme stock rally, but in the greater context of the economy, "the losses that shorts had in GameStop and so forth over the last 24 hours, those are a small drop in the bucket in this massive ocean of our economy."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie RIehl

Video Transcript

John, when you take a look at some of the moves that we are seeing, you got to talk about or you got to take a look at least the meme rally and what we are seeing in game, but we are seeing a MC.

I'm not gonna ask you just specifically comment about that rally that we're seeing those specific name.

But I'm curious from a macro perspective.

Should we be paying attention to this at all?

And why and why not?

I Sean, I wish I had a better answer for you.

I don't know.

I you absolutely should be paying attention to it.

The question is, what's the message?

What, why, why is this happening?

What's what's underlying this this move in markets?

If you step back when we had a meme stock rally, you know, back in 2020 2021 when it was all the rage.

When you really got behind it, there was a, there was an undercurrent of liquidity there that was an important catalyst for what was going on.

If you really understood the implications of liquidity, both in terms of, of, you know, juice for the market, but also to to the the the opportunity for to create inflation challenges.

It would have been a real some really important issues to understand.

And underneath the surface of that mean stock rally, is there something like that happening today?

It's it's too early to tell we're 24 hours into this mean stock rally.

But as a fundamental long term oriented investor, I'm certainly cognizant of any short term volatility and trying to understand if there's a a turning point in the market that I need to to to have a better grip on.

And John, that's what I was curious about just this exuberance and maybe the signals that is in the market clearly.

What ultimately this could essentially mean even with Powell, he has commented on the meme rally in the past going back a couple of years, but even how the fed could potentially be looking at some of this excitement then what that ultimately means here for the broader markets and for strategists like you, yeah, I would, I would hope the fed like myself is paying attention to everything, but you also need to have it in, in, you know, keep things in context.

I mean, the US economy is what 22 trillion or, or something of that magnitude.

So uh uh you, you mentioned off the top the the losses that shorts had in, in games stop and, and so forth over the last 24 hours.

Those are a small drop in the bucket in this matter, ocean ocean of our economy.

But again, the FED is not doing their job.

If not, they're not paying attention to every marginal incremental data point.

Trying to understand it.

When you look across other parts of the economy, there's plenty of evidence that there's some, some, some challenges underneath the surface in the economy that the FED needs to be mindful of and be cognizant of.

When they think about the rate policy.

When you look at some of the consumer data points in, in, you know, Q one earnings, you saw some evidence that the the pinch from inflation is, is starting to be felt by consumers.

You're seeing on the margin of some slowdown in, in, in certain cohorts of consumer behavior and I suspect the FED is much more worried about that than they are uh one or two stocks adding a few billion in market cap.

All right, John Porter, always great to get your insight here.

Thanks so much for hopping on and joining us here this morning, Newton Investment Management chief investment officer and head of Equity.