This month we’ll be speaking with leading mortgage providers about where the market is headed and how products are digitally evolving to meet buyer needs. We’ll also be exploring new alternative funding options that are changing the game for buyers and sellers. Visit us for the month of the mortgage and alternative financing.
Stocks of online mortgage giant Rocket Companies slumped Wednesday, falling more than 30 percent as a historic rally apparently driven by so-called “meme dealers” ran out of steam.
The rally began on Monday when shares of Rocket – the publicly traded iteration of Quicken Loans – rose from the low $ 20 range in which they had been weakening for months to over $ 41. The jump meant an increase of more than 70 percent.
But on Wednesday prices fell again. The decline was steady throughout the day and by the time the markets closed the price had locked at around $ 28, a decline of more than 33 percent.
Tuesday’s price hike ultimately gave Rocket its best day on the stock market since the company went public last August. But Wednesday autumn was also Rocket’s worst trading day to date.
Corporations see their stocks go up and down steadily, but the volatility in Rocket’s stock prices is noteworthy as the company hasn’t released an earnings report this week, made major announcements, or hit the headlines for non-stock news. In fact, CNBC labeled the price changes “irrational pop”.
So what exactly is going on?
Well, it seems stock traders from the online message board Reddit could be to blame.
Reddit-based traders are ordinary retail investors – as opposed to institutions or hedge funds – who have used their numbers over the past few months to buy enough stocks of certain companies to raise prices. They are sometimes referred to as “meme dealers” because they often use emojis and funny memes to communicate, and because they don’t necessarily target companies based on financial performance. In practice, they often pick companies that are sharply discounted, which means institutional investors are betting that the companies’ stocks will fall in price. The trend has a certain populist feel to it, and many traders celebrate the chance to institutionalize it.
The most famous example of these meme dealers influencing the market was when they managed to raise the price of the shares in retailer GameStop by hundreds of percent. GameStop shares eventually crashed again, although there are still significant price fluctuations.
Rocket hasn’t seen GameStop’s volatility, but the company has surfaced repeatedly this week on r / WallStreetBets, the now infamous message board behind the meme trading phenomenon.
“Rocket to the moon,” wrote one user earlier this week.
“$ RKT has a full tank and is ready to take off!” another wrote.
“Team rocket blows up baby 🚀🚀🚀🚀🚀🚀,” wrote another.
It’s worth noting that “to the moon” and the rocket ship emoji are two of the most common comments the Reddit trading community uses when describing their trades. For example, when GameStop was soaring, many Reddit users talked about taking the company’s stock “to the moon”.
In that light, it’s entirely possible that some of the Reddit retailers might like Rocket because its name intersects with the community’s witty terminology. This makes little conventional sense from an investment perspective, but the meme trading phenomenon is fueled in part by humor and some kind of crazy festival of throwing conventional wisdom out the window.
Even so, there have been a number of comments on Reddit suggesting that rocket companies are actually a safer financial bet than other meme trading destinations.
In both cases, however, analysts took note of the volatility and began adjusting their outlook accordingly. According to CNBC, Daniel Perman, an analyst at RBC Capital Markets, downgraded Rocket stock Wednesday, and JPMorgan’s equity strategist suggested that investors “take profits,” or in other words, sell and cash out their stocks.
Update: This post was updated with the latest Rocket stock quotes as soon as it was posted.
Email Jim Dalrymple II