Are MEME stocks making a comeback?

US Equities Surged on new Tariffs Deadline and Multi-trillion Tax Cuts

Stock markets are said to have short memories.

The tariff chaos was disremembered a short while ago. But as the deadline (to higher tariffs) looms, memories of that unpleasant episode are flooding back. And just like before, political postures are immediately angled to maximise negotiation advantages. In this, President Trump has form.

“Any Country,” blasted President Trump on his TruthSocial account on July 7, “aligning themselves with the Anti-American policies of BRICS, will be charged an ADDITIONAL 10% Tariff. There will be no exceptions to this policy.” The 17th BRICS Summit is being held in Rio de Janeiro, Brazil on July 6/7.

In addition, threatening letters are being dispatched to dozens of countries to demand negotiations and to conclude deals, with a new deadline on August 1. The US President is confident that deals will be made before this new self-imposed date.

The US President is certainly riding high these days. His flagship, 900-page BBB Act (Big Beautiful Bill) was signed into law last week, after tense voting in both chambers of the US Congress. Tax cuts were the main focus of this new law. These tax breaks are estimated to be worth up to $4.5 billion. No wonder investors are optimistic.

The S&P 500 Index (SPY) surged to its highest level ever last week, capping a multi-day bullish streak. The tech-weighted index Nasdaq 100 (QQQ) also rallied to fresh highs. So powerful and consistent is the US bull run that one Financial Times columnist, Rana Foroohar, observed (£) that “I have marvelled…and continued to marvel, at how markets shrug off the most dramatic political and economic events……nothing seems to derail investors’ animal spirits.” Indeed the trend is strong.

US retail investors are piling in; US companies are buying back their own shares at record pace ($750 billion already authorised). Confidence is running extremely high, and affirmed almost on a daily basis as stock indices notch one new high after another.

As confidence ramps up, risk awareness inevitably drops. One Wall Street Journal headline (July 7, £) this week captures this speculative trend: Meme Stocks and YOLO Bets Are Back and Fueling the Market’s Rally.

The speedy rebound in US equity indices since April has strongly affirmed investor bullish thesis that stocks are still the best bet. (Another, of course, is crypto.) While blue-chips firms have, for now, fulfilled their stocks’ upside potential, capital is flooding into speculative securities in search of better potential gains. Just like the good old days in 2021 when money flooded into every unprofitable stock.

In every market upswing, new securities emerged. In 2021, it was those MEME stocks like GameStop (GME) that captured investors’ imagination. Now, the likes of Coreweave (CRWV) and Aeva Tech. (AEVA) are day traders’ dream stock. Both soared by 400 and 500 percent respectively in two months.

However, the vital question that every prudent investor should be asking now is not whether they should join the fun, but whether these speculative rallies mark the hallmark of a late-stage bull run.

The bulls will probably jump up immediately and roundly reject this categorisation. The market, they point out, continued to surge for a full nine months even after the GME bubble popped in early 2021. The contention is that the current rally still has a long way to go.

Moreover, the US President is now actively searching for a replacement to a new Fed chair. The new chair is likely to be a ‘low rates’ economics expert who is willing to reduce borrowing costs significantly from current levels. A near-ZIRP works wonders on the stock market. (ZIRP=Zero Interest Rate Policy) The rewards in staying in equities outweighs the risks.

While optimists would vouch for this bullish thesis, a recent chart from MSCI, the global index provider, caught my attention.

The graph succinctly summarises some earnings revisions of major global markets over the period Jan-May 2025. Note the bars in green (DM Americas). All USA equities (Mega, ex Mega, and Small) reported downward EPS revisions in the first five months of the year. If this chart is accurate, it suggests that investors are holding on to companies that are experiencing some earnings stress.

Another point to note is that USA Small Cap stocks appears to be making the biggest downward revisions. Perhaps tariffs are hitting these companies harder.

Of course, falling EPS expectations does not mean stock prices will drop substantially, if other factors (eg price momentum) can prolong the rally. At this point, I would say few are willing to go against the roaring bull trend since all doubters are likely to be trampled by the herd. The market will only drop when the last bull is sucked in, when there is no one else left to buy.

Source: MSCI (Jun 2025)

For now, many investors are still buying. Not only that, traders are employing margins (leverage) to enhance their returns. Margin debt in the US soared 8.3 percent in May (see below).

From these trends, the path of least resistance for stock indices seemingly lies northwards.

Source: www.advisorperspectives.com

UK Market Breadth

What about the UK stock market?

Over the weekend, I did some number crunching to see the state of the UK FTSE 100 Index – in term of market breadth. That is, I wish to find out if aggregate stocks prices are moving in line with the underlying technical indicators (eg momentum).

I used four breadth parameters (number of stocks above 150-day moving average, number of stocks reporting point-and-figure bull trends, and averaged price momentum). I then compare these breadth results to an equal-weighted equity index. Here is what I found.

Over the past month or so, while prices generally drifted upwards (light blue line), the breadth indicators have drifted lower. For example, the number of stocks trading above its 150-day MA (percentage) is below its June highs. The same with momentum. When prices and breadth diverge like this, it suggests some internal weakness. In other words, some stocks are not keeping with the market rally and have started to consolidate.

 

Source: author’s calculations

But this, by itself, is not a sell signal. It merely highlights that the equity rally from April could be near a short-term inflection point as some traders book profits ahead of the potential tariff tensions.