Inflation Is Up, GameStop Is Down, and Reddit Says: “Hold”

Inflation is at a high not seen since 2008 and meme stocks are taking hits in the markets. Reddit's advice? Hold.

Many analysts believe that the huge influx of amateur retail traders who have flocked to social media sites like Reddit to learn about the market are people who lost their jobs or began working from home during the past fifteen months. That shift in how–and if–we work left a huge portion of the population with a lot more downtime.

Even those who still had their jobs were now working in a strange new way, saving time in their day from commuting and running errands out of the house. Analysts conclude that this led to a massive surge in interest in ways to make money from home.

Even for those who are out of work, the multiple stimulus checks that have been issued and the ongoing federal unemployment bonus have helped keep some money flowing in. Some of those people could be using their stimulus and unemployment money to get into the stock market. The result? An unstable market that has Wall Street analysts scratching their heads.

Inflation is Up

A recent report from the Federal Reserve indicates that inflation in May was at a high not seen since 2008. This has been partly blamed on factors stemming from the lengthy lockdowns of 2020 and into 2021. After all, millions of people deferred their spending across all of last year and part of this year on things like clothes, cars, and vacations. As the economy has reopened, demand has skyrocketed.

Inflation Concept

To make matters worse, the production of some big-ticket items has encountered serious problems. For instance, new cars are extremely difficult to make at the moment due to a semiconductor shortage. This has led to a huge bottleneck as manufacturers try to fill extremely high demand. New cars are extremely difficult to find in the US right now because of this, causing their prices to jump up. Likewise, used cars have seen a similar bump up in prices. And that’s just one example of inflation being seen across the American economy.

Central Bank Policy

Some economists worry that the current policy from the Fed isn’t helping stop skyrocketing inflation. Since the start of last year, the Fed has been engaged in a very aggressive policy to keep cash flowing through the economy. The central bank has been buying bonds at a breakneck pace every month and has taken steps to keep interest rates low.

At the moment, the Fed seems to have a high tolerance for inflation. Policymakers within the central bank have expressed to reporters that they feel as though this level of inflation is natural, given how much deferred spending there was throughout 2020. As supply catches up to demand and the economy levels back out to “normal,” the thinking goes, this very fast inflation will settle back into more acceptable levels.

If it doesn’t, however, there are still steps the Fed can take to try to deflate the currency, too.

“The pick-up in inflation is stronger than expected, but it still looks like it is in transitory categories,” NatWest analyst John Briggs told reporters. “They can probably get away with talking about transitory.”

What Does This Mean for the Markets?

The stock market remains in the unpredictable place it has occupied throughout much of 2021. The usual names, like Apple and Tesla, continue to perform. The real excitement is happening with cryptocurrency and meme stocks, however. To hear the r/SuperStonk subreddit tell it, meme stocks are about to have another breakout month in June.

GameStop Stock Concept

Even in spite of the drop in GameStock’s shares on Wednesday and Thursday due to the news shared in the company’s investor meeting, many Redditors on that forum remain in good spirits. Other meme stocks like Clover Health and AMC are also cooling off rapidly. Several of the amateur investors in the Reddit “meme sphere” have referred to the downturn in these stocks’ performance as “stocks on sale,” encouraging newcomers and veteran investors alike to snap up the memes while they’re cheaper.

The advice, as ever, is “buy and hold,” which is to be expected from the more meme-centric branch of Reddit investing. Optimistic Redditors are quick to point out that GameStop’s stock is up 1000% on the year, and that it remains to be seen just how high it could go.

On the other hand, establishment advice is that the stock is being overvalued by extreme interest from retail investors. These industry veterans contend that the current share price doesn’t reflect the company’s ability to actually make money. The question for GameStop investors is the same now as it was six months ago: How does a video game retailer make money in a world where gamers download their titles straight from a digital storefront? It’s up to GameStop to prove that they can still be profitable in a new digital-first retail landscape before establishment investors feel bullish about the company’s stock.

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