Worries About a Return of Meme-Stock Mania Look Overblown

Meme stocks are running again, and that’s a bad sign for the stock market, one investment bank says. Maybe so, but if I’m nitpicking, recent action doesn’t look especially meme-y. I’d characterize it more as a tactical trash bounce.

“Return of the Memes Is a Red Flag,” read the title of a July 11 technical-strategy note from BTIG. It pointed out that an index of meme stocks was up 10% in three days, compared with a decline of close to 2% for consumer staples. Over the past 18 months, when the three-day spread between the two has grown that wide, the

S&P 500
has lost an average of 1.5% over the following 20 days.

A decline that small would perhaps be more interesting to day traders than long-term savers. But the note has a takeaway for everyone: A broadening out of this year’s rally is “encouraging,” but a surge among low-quality stocks “often is the tail end of the move.”

Market breadth is a hot topic. The S&P 500 index is up 17% year to date. Seven stocks combining for $11 trillion in market value contributed 73% of the index’s first-half gains, according to BofA Securities. These are


(ticker: AAPL),







Meta Platforms



(NVDA), and



The Magnificent Seven, as some investors are calling these stocks, trade collectively at 40 times earnings and are skewing valuations higher for index investors. The S&P 500 as a whole goes for a lofty 20 times earnings. The index minus the Magnificent Seven—the Frugal 493?—trades at a more reasonable 15 times earnings.

There’s more to worry about than valuations. Second-quarter financial reports are just ahead, and the consensus has S&P 500 earnings falling 9% from…


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