The Resurgence of Speculative Trading and Meme-Stock Investing in 2025: A Macro Perspective

• Panic has turned to euphoria in some slices of the equity market

• Shares of low-quality companies and highly shorted stocks have soared this summer, much like some did in early 2021

• We outline the risks and macro implications of this bubbly environment

Meme-stock trading is back! Recent bursts of buying activity in shares of OpenDoor (OPEN), Kohl’s (KSS), Krispy Kreme (DNUT), and GoPro (GPRO) have rekindled early-2021 vibes when GameStop (GME), AMC (AMC), and the like were going to the moon. Reddit’s r/WallStreetBets was the forum to get in on the ideas and action some three and a half years ago. Pumped by stimulus cash, record-low interest rates, and people stuck at home with not much entertainment, day trading was the go-to.

But why has the trend resurfaced? What does it mean for the macro? We will explore these questions. The debate rages on over whether 2025’s meme-stock mania is an irrelevant flash in the pan moment during an otherwise sturdy bull market or if it implies excess frothiness and something more sinister.

Allio’s take? We view it as a normal part of modern price action, but it is likely more closely linked to the latter innings of an upswing. Thus, it’s a yellow flag, not a red flag. The truth is that markets are always noisy, and meme stocks ratchet up the volume. We must look beyond the clickbait headlines to discern the true signals—the forces driving the speculation. 

Remember: Chaos (including meme stocks) makes headlines, we make strategy.

The Macro Backdrop Feeding Meme Stocks in 2025

Investors experienced a washout moment in April. The S&P 500 plunged from 5695 to 4835, down 15%, in just three trading days after President Trump toted out that infamous posterboard of shockingly high reciprocal tariff rates. From the February 19 peak to the early-Q2 nadir, it was a whisker from a 20% technical bear market. The Cboe Volatility Index (VIX) rocketed to 60, and media talking heads warned of a market crash on par with what occurred in October 1987.

The tide rises, the tide falls in stocks. Within days of the most dire predictions, equities bottomed, and we haven’t looked back. It was a thrill ride for volatility chasers, like cheating death and fighting to live another day. Jump ahead to the summer, and traders are getting their kicks not via wild moves in the indexes, but from a new set of meme stocks.

From July 1 to July 25, OPEN added 377%, KSS climbed 51%, DNUT delivered a 52% return, and GPRO gunned higher by a cool 99%. The rallies have come as the S&P 500 notches record highs and the VIX settles below 15; Wall Street’s “fear gauge” is now at the lowest mark since the middle of February. 

July Meme Stock Returns

Source: Stockcharts.com

Other macro indicators paint a sanguine view of financial markets. Just take a look at speculative fervor hitting the alt-coin market in crypto. Initial Public Offerings (IPOs) are hot, and even 2021’s darling Special Purpose Acquisition Companies (SPACs) are making a comeback.

Happy days are here again, just as the sometimes-bearish winds of August through early October get ready to blow. Indeed, the resurgence of spec trading in 2025 is a confluence of macroeconomic, technological, and behavioral factors. Understanding these drivers is critical for investors as macro conditions shift.

The 2025 Speculative Surge: What’s Driving It?

You know things are getting serious when Goldman Sachs puts out an in-depth note on current happenings. Titled “Speculative trading activity adds fuel to narrow-breadth short squeeze,” the sellside research report was the talk among financial pundits during an otherwise quiet week in the markets.

We can always count on the Wall Street marketing machine to get cranking when retail traders are lured into some big idea or trend. To wit, Goldman crafted a “Speculative Trading Indicator” to put some math behind the madness. The gauge, per Goldman, reached its highest level on record outside of the 1998-2001 tech boom and bust and the 2020-2021 O.G. meme stock run. 

While it “remains well below” those previous peaks, the current volume spike in unprofitable stocks, penny stocks, and stocks with elevated valuations highlights traders’ need for speed, so to speak.

Goldman Sachs Speculative Trading Indicator Jumps to Multi-Year Highs

Source: Goldman Sachs

To be clear, current hijinks pale in comparison to the February 2021 episode. Still, three factors parallel what occurred earlier in the decade:

1. A Risk-On Macro Environment

Stocks are at all-time highs, the VIX has backed off, and cooler heads (so far) prevail in the bond market. That’s a far cry from the springtime. President Trump’s recent visit to the Federal Reserve buildings, hosted by Chair Powell, was a microcosm of the current landscape. The friendly meeting, which included Trump playfully slapping Powell on the back, helped lower the temperature between the White House and the Fed. 

It served as a reminder that the macro setting is not so hostile—even issues that are perceived to be market-rattling are often nothingburgers. Trade deals are being inked, tariff revenue is pouring in, and inflation is only slightly elevated.

There’s also a bull market happening among international stocks, promoting a broad-based risk-on environment. The German DAX is near a record, Japan’s Nikkei is above its December 1989 high, and foreign small caps (of all things) are outperforming. In the bond market, the benchmark US 10-year Treasury note yield remains steady in the mid-4% zone, while high-yield junk bonds hit new highs on a total return basis. Bitcoin is up by more than 25% on the year, and gold is within earshot of its April high of $3,500.

In short, the conditions are ripe for a bit of dice-rolling by investors seeking some late-summer fun.

2. Small Traders Enabled by Technology

Forty-one months removed from our first collective encounter with The Roaring Kitty and moon-shotting trash stocks, technology remains the key mechanism for retail traders to go crazy. Layer in AI (which came about in November 2022), and day trading can get even wilder. Today’s apps and analysis tools more quickly track metrics like real-time short interest, while WallStreetBets and X gather giddy meme traders and are hotbeds for viral stock-pick ideas.

Monitoring Reddit message boards is like stepping into a casino. Meme stocks are the games of choice. At the zenith of the July frenzy, KSS doubled on extremely high volume from the close on the 21st of the month to the following morning. Opendoor, an embattled real estate tech company, saw its shares rise from $0.53 at the beginning of the quarter to $4.97 by late July as X posts pumped it. Krispy Kreme turned into Krispy Meme, while the blast from the past that was GoPro recorded a giant leap of its own.

There’s no doubt that the playing field is significantly different today compared to pre-pandemic times. Technology has blurred the line not only between small and large traders, but also between speculation and strategy. We prefer to focus on the latter. 

So, while meme-stock trading can be thrilling, it’s also ripe for manipulation and losses for those without a clear risk management plan. Allio encourages all investors to keep a macro focus and stick to the true long-term drivers of risk and return.

Invest with Clarity by Focusing on the Macro

3. Behavioral Dynamics...Our Old Friend FOMO

The Fear of Missing Out (FOMO) can be one of the most potent influences on short-term stock market trends. Your goal should be to suppress the behavioral nudge to act on what your friends are doing or what some schmuck on TV goes on and on about. The dirty little secret is that most brokerage companies and just about the entire financial media work tirelessly and spend billions annually to get you to trade more based on hot stock picks and short-term hype.

They have been immensely successful lately, as evidenced by the boom in penny-stock volume, story stocks, and options trading. Goldman notes that call options, or bets on near-term rallies in shares, now account for more than 60% of total option volume, near the highest since early 2022.

Now, there may be some signal here. As the behavioral feedback loop perpetuates, near-term market returns can be quite substantial. Stretch out the time horizon to two to three years, though, and the S&P 500 has underperformed after such FOMO-driven market conditions.

Exuberance Now, Disappointment Later?

Source: Goldman Sachs

Social media echo chambers are dangerous for both novice and experienced investors. Just take a look at the original meme stocks and where they trade today:

• GME hit $120 in January 2021; it’s now $23. 

• AMC tagged $445 in June 2021; it now sells for barely above $3. 

Sure, if you bought before the meme-stock hype machine cranked up, you may have been able to lock in profits. But for those who were sucked in after the stupidity ensued, it was nothing but a trail of financial tears.

Today’s meme darlings, OPEN, KSS, DNUT, and GPRO, share a common trait: their price movements are driven more by sentiment than by earnings or cash flow. High short interest, low share prices, and viral social media attention are not long-term metrics to get you to your long-term financial goals. 

And now we have influencers getting in on the nonsense: American Eagle Outfitters (AEO) went meme-stock-crazy after actress Sydney Sweeney’s ad campaign went viral on Reddit and X. To be fair, AEO has somewhat better profitability metrics compared to the names mentioned earlier.

Most Shorted Stocks Leading

Source: Bespoke Invest

Risk Management Tips

• If you are going to partake of this silliness, don’t bet more than you can lose. Remember: Trading individual stocks is not the same as owning a diversified portfolio. A single stock can absolutely go to $0, so adding to the position as it drops is not always a winning tack. Don’t go with a “diamond-hands” plan.

• Have a clear exit strategy for both upside and downside scenarios. Profit taking is prudent, and knowing when to get out if/when the trade goes against you helps you stay in the game. 

• Use just a small part of your portfolio. If you must scratch that itch, take, say, 5% of your investable assets and screw around. Always keep a long-term mindset with the remaining 95% of your wealth. It’s too important to put in the hands of the meme crowd.

Macro Implications: Opportunities and Risks

Our team believes that the current meme-stock rally will be short-lived, just as past speculative pops and drops were fleeting. What’s enduring, however, are the lessons we can continually come back to. Revisiting sound long-term macro investing concepts keeps your eyes focused on the prize.

1. Market Stability and Systemic Risks

Volatility tends to run hot at market lows or highs. Steady downtrends and uptrends generally feature a low VIX and even boring price action. It raises the question: Does today’s meme stock action signal macroeconomic instability and rising risks across asset classes?

As Goldman’s research note pointed out, it may be a sign of possibly years to go in the bull market, but the problem is that the sample size is small. Moreover, markets move faster today than they did in years past. Bear markets come about quicker these days, while sudden momentum drops can trigger market-wide corrections on their own.

Our team will be watching other asset classes for evidence of rising systemic risks. Namely, the bond market could be the best tell. US interest rates are stable, but we are seeing long-term sovereign yields in other developed markets creep up.

Cboe Volatility Index Sinks Under 15, Promoting Retail Risk-Taking

Source: TradingView

2. Economic Signals: Froth or Fundamentals?

The corporate earnings backdrop also affords some additional risk-taking. Forecasts for calendar-year 2025 S&P 500 earnings per share have hooked higher lately, and there’s actually more focus on 2026. We could see upwards of 14% EPS growth during the mid-term year. 

Odds of recession have fallen hard, too, despite the media’s fearmongering in April. (Isn’t it ironic that the same so-called experts were enticing you to panic sell near the lows and are now baiting you to buy into the meme-stock craze?) Thus, the macro milieu appears somewhat benign to us, although we are always on the hunt for what could go wrong. 

For now, trade policy has been executed well by President Trump, AI investment from the mega-cap hyperscalers continues to grow (aided by Trump’s May visit to the Middle East and the recent “AI Action Plan” conference), and Fed rate cuts may begin sooner rather than later.

Strong Corporate Earnings Signal Macro Strength: 14% SPX EPS Growth Expected in 2026

Source: FactSet

3. Retail Investor Vulnerability

The democratization of investing has its inherent flaws. Keyboard warriors on Reddit and X wield unprecedented influence, which puts small investors in danger. That’s a macro challenge, as repeated pump-and-dump schemes may result in a loss of confidence, and risk appetite economy-wide could fall. And it’s that appetite that sets the US apart from the rest of the world.

Are we getting a bit existential here? Perhaps, but investor confidence is delicate. The factors and mediums that lift small traders could be the very same that drive longer-lasting divisions between the retail and institutional crowds. Financial literacy remains a key macro risk, and the psychological and emotional high that comes with trading meme stocks doesn’t help the situation.

How You Should Play It

1. Avoid FOMO. Focus on Fundamentals.

Mute the TV and turn off the podcast when they start talking about the DORK stocks: DNUT, OPEN, RKT, and KSS (RKT is Rocket Companies, a mortgage servicer). You don’t have to parse each GDP, inflation, or jobs report, but recognizing that fundamentals drive returns can keep you levelheaded.

2. Leverage Tech, But Stay on Target

Tech tools, including automated macro investing at Allio, can be a useful part of your investment strategy. Conversely, relying on an algorithm to identify the next explosive meme stock uses tech for all the wrong reasons.

3. Diversify Across Asset Classes

Allocating too much to meme stocks is obviously a danger, but so too is centering on a single asset class. Instead, your portfolio should house seven groups: stocks, bonds, cash, real estate, commodities, gold, and cryptocurrency. As meme traders live and die by daily gyrations, your diversified approach can stand the test of time.

4. Monitor the Macro

Allio’s Macro Calendar is your go-to for keeping up to speed on the latest economic crosscurrents. Putting together a macro mosaic based on hard data trends (not a meme-stock roster) gives you a clear view of what’s driving markets.

5. Be Dynamic, Not Chaotic

Ultimately, maintaining a diversified investment mix allows you to stay nimble and meet your goals. A Dynamic Macro Portfolio is designed with the aim to participate in bull markets and offer defense in bear markets, although there are no guarantees in investing.

The Bottom Line

The summer of 2025 has the feels of January-February 2021 all over again. A fresh wave of retail-driven frenzy is sweeping through markets: heavily shorted, struggling companies are being lifted purely by social media momentum, with prices soaring on hype rather than fundamentals. This is no way to invest over the long haul. 

At Allio, we aim to guide investors through the complexities of the market by using strategies based on real-world fundamentals and trends. Our ALTITUDE AI Technology is designed to apply quantitative investing principles, while aiming to avoid short-term market hype.