The company Trump Media and Technology Group (TMTG) is at least as unpredictable as its founder: the shares of Donald Trump’s (78) right-wing media company, to which the portal “Truth Social” belongs, have been going up and down for months. Within a year the range was between $80 and $12. In October alone, the stock more than tripled before massive profit-taking began on Tuesday, exactly a week before election day. On Tuesday, trading in Trump Media shares had to be suspended several times due to the extreme fluctuations, and the shares temporarily lost 20 percent of their value.
The case shows how dependent stock prices can be on a person. For months, Truth Social’s stock price has been overly inflated and unstable because of Trump’s zealous fans. Shortly after the official stock market launch in March, the shares shot up steeply and reached a market value of around $9.5 billion. And this despite the fact that the company is deeply in the red and has only a small number of users compared to other portals. The company made it to the stock market in a special way: merged with an empty, listed company shell (SPAC).
. Trump fanboy Elon Musk has repeatedly advised investors on his platform X to invest in Trump Media shares.
At the end of September, Trump was allowed to choose whether he wanted to monetize the 60 percent stake in Truth Social – or whether he wanted to keep it even though his legal holding period was expiring. Trump decided to hold – and thus set off another rally in the share price. There were plenty of reasons for a sale: Trump would have the money after his expensive court cases could also be of good use for his election campaign. The new figures from the US Federal Campaign Finance Authority (FEC) show that opponent Kamala Harris (60) has so far raised $997 million, more than twice as much money as her challenger.
The more lucrative path still seemed to be holding for Trump. His exit would likely have sent the share price plummeting and deprived many of his loyal supporters who invested there of their savings. Trump is apparently hoping to drive up the share price again by moving into the White House in November – and thus also benefit himself.
“Meme stocks are everywhere”
What happens to Trump also happens to Truth Social. The company is not an isolated case. So-called meme stocks have been circulating on the stock market for months. This refers to securities that can gain or lose a lot of value due to a viral trend. Private investors usually meet on platforms like Reddit to invest in a stock on a large scale. The trading volume increases regardless of the performance, quarterly figures and prospects of the company in which the investment is made.
It’s a kind of fast-track pyramid game: If you buy at the right moment, you can achieve double-digit price gains within a few minutes, and if you’re just a few minutes late, you can minimize your investment in record time – as was the case with Trump Media last Tuesday.
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“The appearance of a new meme stock often depends on the mood of individual personalities,” says Marcel Heinrichsmeier, analyst at DZ Bank. “These people usually have loyal followers who follow their role model.” Tweets and public statements from personalities like Donald Trump could therefore cause significant price changes due to emotional, inexperienced investors who follow the masses.
Course changes with a tweet
“Meme stocks are everywhere right now,” Pimco co-founder Bill Gross wrote on X (formerly Twitter) in July, even referring to the carmaker Tesla as a meme stock – because its value often fluctuates particularly strongly according to individual statements by the company’s boss Elon Musk (53).
Tesla acting like a meme stock — saying fundamentals, straight up price action.
But then there seems to be a new meme stock every other day now.
Most are pump and dump.
Chewy. Zap. And old favorite GME.
— Bill Gross (@real_bill_gross) July 9, 2024
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Trumps hard-working election worker Musk controls the influence on courses like no other. This is evident not only in the stock market, but also in the crypto market. Meme coins, the equivalent of meme stocks on the crypto market, have recently risen sharply. As with stocks, coins can skyrocket massively simply through individual statements from certain people. And for Musk this is the most well-known among them: Dogecoin.
Musk’s bet on Dogecoin
According to a report by Forbes, Musk apparently secretly co-financed the development of Dogecoins. He therefore wanted to create a social media platform based on the blockchain that would enable a payment system using the coin. Musk did not comment on this, but publicly stated that he wanted to increase the value of Dogecoin, which led to an initial price boom. Another boom came when Musk replaced the Twitter logo with that of Dogecoin in early July. Musk now even allows speculative investments with Dogecoin as a means of payment at Tesla.
In the last month alone, the meme coin rose by 44 percent.
Trading apps increase the effect
This is a risky game for investors. “Meme coins are cryptocurrencies without any intrinsic value,” says Anna Wolf, crypto expert from the ifo Institute. Speculating with such coins is “pure gambling” for private investors, says the expert. A game that can quickly lead to a total loss.
They have addictive potential, especially in trading apps. Trading algorithms amplify the effect. Because as soon as a value increases, the algorithms on the trading platforms show the meme values more clearly. That will then attract even more people, says Wolf. Although the SEC regulates suspected cases of market manipulation, there has been little movement from it so far. The market has been pushing itself up for months now and then, without any intervention from the stock exchange regulator.
Meme Stocks and the “Gamma Squeeze”
“The market for meme stocks is characterized by unpredictability,” says Thomas Kulp, also an analyst at DZ Bank. The mood is fueled on social networks, such as the Reddit platform. “However, often only profits are communicated publicly, while losses often go unmentioned,” says Kulp. This makes the gambling values even more dangerous.
The game has a huge impact on the market: During past meme stock price surges, traders have fled to call options, forcing them to buy the shares as a hedge. These purchases reinforced the uptrend while also depressing some derivatives and triggering further options buying, known on Wall Street as a “gamma squeeze.”
The game with Gamestop repeats itself
Truth Social in particular is reminiscent of the great dilemma of Gamestop shares, which experienced a revival in the summer. Thanks to a single post by financial mogul Keith Gill (38) on Platform X, the US computer games retailer’s shares reached new heights again and briefly doubled their value. After Gill’s post, private speculators arranged to bet against hedge funds that had bet on falling Gamestop prices. They used the Reddit discussion group Wallstreetbets to do this.
This forces the short sellers to close their short position, i.e. to buy back their shares. The value of the share increases even further, causing even more investors to come in and out. At some point the big crash will come. “Missing the right time involves a very high risk,” says Heinrichsmeier. The was actually shown at Gamestop in 2021: The price fluctuated between 14 and 419 euros over the course of the year. In addition, the shares of the US cinema operator AMC, those of the furniture retailer Bed Bath & Beyond and those of the software manufacturer Blackberry also went viral and made headlines with adventurous price jumps (and subsequent losses).
The question arises: How could there have been so many meme stocks again in the last few months? Were there no lessons learned from the Gamestop mess?
The fear of missing out
No, explains Kulp. The fear of missing a positive trend and the often critical attitude of the meme stock herd towards established financial market participants would make such meme stock rallies more likely to repeat themselves, he explains. “Investors react extremely to information based on past experiences, which creates vulnerability to renewed rallies,” said the expert. This meant that the price of Gamestop shares could rise again at the beginning of June.
Meme stocks are particularly successful when the market fluctuates significantly. And he has clearly done that since the corona pandemic. The classic financial market theories that the market always finds a fair price have fallen apart over the past three years. Since 2020, some experts have been saying: “The markets stopped being rational”.
More on the topic
With their bets on meme stocks, retail investors have even exposed a weak spot in hedge funds. “They have rewritten the rules of the game on the capital markets,” says DZ analyst Kulp. After initial losses of billions due to meme stock rallies, hedge funds have partly learned to adapt.
In the meantime, some hedge funds have even changed sides and are playing heavily in the risky meme stock game themselves. For example, the hedge fund Renaissance Technologies acquired shares worth over 13 million euros shortly before the Gamestop rally in May. The game with the shares of Trump Media, Gamestop and Co is likely to continue – regardless of the outcome of the presidential election on Tuesday.