NextGen Investing: Young investors changing the character of the market

Young investors are rediscovering their appetite for the market’s speculative fringes.

Shares of GameStop and AMC Entertainment Holdings — the poster-children of this year’s "Reddit boom" driven in large part by millennials — surged in May. Computer game seller GameStop rose 28% last month and movie theater chain owner AMC was up 160%. The gains were reminiscent of the mania that gripped the market back in March. The S&P 500, meanwhile, was up less than 1% in May.

GameStop and AMC were among the best performers last month in a basket of 37 so-called meme stocks tracked by Bloomberg. While the catalyst is unclear, individual traders appear to be driving the action. Touts are plastered all over social media with investors attempting to pump their bets on Twitter, Reddit’s WallStreetBets and chatrooms on Stocktwits.

"The Reddit raiders are at it again," said Michael Pachter, analyst at Wedbush Securities. Pachter said the interest in GameStop and AMC "looks retail driven," meaning the gains were sparked by individual investors, not powerhouse Wall Street money managers.

The gains are sure to bring more pain for short sellers betting against GameStop and AMC. With the retail investor movement regaining momentum and both stocks having high short interest, there’s potential for a short squeeze.

"Short sellers may start trimming their positions in the face of continued stock price strength," said Ihor Dusaniwsky, managing director of predictive analytics for S3 Partners.

Meanwhile, bitcoin and its crypto brethren took investors on a wild trip last month. As bitcoin plunged as much as 54% from its February high, more than 700,000 traders had their accounts liquidated in a 24-hour stretch, many because they had borrowed money from brokerages to buy bitcoin.

Investors, however, took the dousing in stride. Many fans of the notoriously volatile cryptocurrencies used the dip as a buying opportunity.