Why this market rally is different from the meme trade boom

Some market strategists are starting to say investors are jumping into the market because they don't want to miss out on the recent rally. But Bloomberg Opinion columnist John Authers doesn't think this rally is like the meme stock rally we saw over the last few years. Authers tells Yahoo Finance Live about the differences between the two market trends.

Video transcript

JULIE HYMAN: If meme media had taught us anything, it was the perils of high valuations. Stocks plunged around this time last year, and some will remember it as the massacre of the memes. Writing at the time, our guest, John Authers, said, it was primarily driven by valuation and reminiscent of the bursting of the dot com bubble, which we've talked about with regard, the parallels between that and AI as well.

Let's get back to John now. John Authers is a Bloomberg opinion columnist. And John, you know, it seems long ago now, actually, that these meme stocks were popping in such a way. I've heard a lot of people call the most recent melt-up in the market a FOMO trade, right? And I just wonder how you're thinking about that period of retail enthusiasm followed by bust and what lessons we can draw for right now.

JOHN AUTHERS: OK, I think they are, quite interestingly, different. Certainly, there's something to do with FOMO going on at the moment. You really don't want to miss out on AI now that people are getting excited and people are diving in. What was different about the original meme boom-- and I also know what it's like to get a lot of hate mail on Twitter and elsewhere-- was that it wasn't just about-- it's normally about greed and fear.

But the GameStop rally back 2 and 1/2 years ago was about anger. People were angry. They were angry with the shorts. They thought they could get their own back and reform Wall Street by forcing people who had overdone the shorting of GameStop. And that was what was motivating people rather than the greed to get rich. It was sheer, unadulterated anger, which is a very dangerous phenomenon. That's not the normal market psychology. It's difficult to know how angry people will eventually come to their senses. You've got precedents for how greedy or fearful people do.

So that's my greatest concern. I mean, I think the other point to make about the GameStop rally, which I don't think is present this time, is that that was at a much earlier stage of the pandemic, the cycle of working our way through the pandemic. People had stimulus checks. There was this retail phenomenon that far more small investors did, actually, have some spare cash to do something interesting with. So I do think what we're seeing now is more meaningful and more in line with what you would expect from history than the meme stock boom of two years ago, which was just bizarre.

My friend, Spencer Jakab, now with the Wall Street Journal, wrote a book called "The Revolution That Wasn't" about GameStop. And I think in some ways, that was right. It was almost an attempted revolution or insurrection that went on there rather than anything more dramatic than that.

BRAD SMITH: Does that, to you, signal a temporary not sidelining, but perhaps kind of checking out of the game for some of the retail investors that, at that time, they had, to your point, stimulus checks. They had more time. They were at home, in front of their computers at all times, and just also had some of that free time to just look at where they would potentially want to invest. And so now, if you're gonna flip that on its head, people going back into social constructs or going back into the office and whatnot. Does that take time away critically for the type of volume that we had come to expect from some of the retail trading frenzy?

JOHN AUTHERS: Yes, I think it does. And I mean, we're still in unusual conditions and giving-- but it's mainly because of the bad air quality in New York today that I'm sitting at home. But it's still far more of us are spending more time at home than we did pre-pandemic. But yes, I don't know how far we've got in the pig of the pandemic working its way through the python. But we are certainly further ahead in digesting that shock.

You've also seen with Robinhood, which was causing great excitement two years ago and is causing somewhat less now, I think the extremes of that small retail boom are over. I do think that the current rally is-- this is a rally about very big companies that we do make a lot of money, not about a pretty small company that really looks as though it ought to go bankrupt, which is what GameStop was two years ago. So this is definitely a more normal, rational market, less led by angry young men in front of their computers.

RACHELLE AKUFFO: Indeed. An interesting take on that market psychology and how it's been changing. A big thank you there, John Authers, Bloomberg opinion columnist, for joining us this morning.