The stock price of Bed Bath & Beyond increased from $4.96 to $19.49 between July 18 and August 16, reflecting a nearly 300% increase in less than a month. Shares rose over 21% on Tuesday alone.
The surge in price is bad news for short sellers, who are effectively betting against the company by borrowing shares, selling them on the stock market, and returning the shares to the original owners at a later date — a strategy that results in a profit if the stock price declines. Investors with short positions lost $662 million on paper over the past month, including a $218 million hit on Tuesday, data analytics firm S3 Partners told Bloomberg.
Meme stocks GameStop and AMC Entertainment also rose Tuesday, with the former rising 6.2% and the latter rising 1.6%. Indeed, the surge in Bed Bath & Beyond stock occurs over a year after traders communicating via online social networks collectively agreed to purchase stock in GameStop and AMC, as well as cryptocurrencies such as Dogecoin. Investors shorting GameStop marked losses over $70 billion, with hedge fund Melvin Capital losing 53% of its value in the wake of the meme trading surge.
Business magnates — including Barstool Sports founder Dave Portnoy and Dallas Mavericks owner Mark Cuban — publicly endorsed the meme trading. SpaceX and Tesla CEO Elon Musk likewise told traders to give “no respect” to “shorty apologists.”
“Old days where a hedge fund manager could quietly short a stock, then publish negative research and take a bullhorn to it in the media are over,” Canadian entrepreneur Kevin O’Leary said of the meme stock trend last year. “They now run the risk that the power of the crowd will turn on them and squeeze their heads like a teenage pimple.”
Some lawmakers, however, were not impressed. In a letter to the Securities and Exchange Commission, Sen. Elizabeth Warren (D-MA) argued that the agency ought to regulate meme stock trading.
“The Commission must review recent market activity affecting GameStop and other companies, and act to ensure that markets reflect real value, rather than the highly leveraged bets of wealthy traders or those who seek to inflict financial damage on those traders,” Warren wrote. “To protect and restore public trust in sound securities regulation and enforcement, the Commission must identify gaps in existing securities laws and rules and ways in which the Commission can improve its enforcement capabilities.”
Nevertheless, a staff report published months later by the SEC generally rejected calls to regulate meme stocks. “Underneath the memes are actual companies, with employees, customers, and plans to invest in the future. Those who bought GameStop became co-owners of a company through a system of mutual trust and participation that sustains our economy,” the report explained. “People may disagree about the prospects of GameStop and the other meme stocks, but those disagreements are what should lead to price discovery rather than disruptions.”
More broadly, the stock market has declined over 10% since the beginning of 2022 amid the Russian invasion of Ukraine, rising inflation, and persistent supply chain issues.