Goldman Warns of Downturn Risk Amid Historic Meme Stock Short-Squeeze

A historic short-squeeze is driving the latest meme stock mania, with a basket of heavily shorted stocks up 60% in three months, according to Goldman Sachs. While this may lead to further gains, the bank warns that it raises the risk of a downturn. Stocks with high speculative trading activity have historically outperformed in the following year but underperformed in the subsequent two years.

A historic short-squeeze is driving the latest meme stock mania, with a basket of heavily shorted stocks up 60% in three months, according to Goldman Sachs. While this may lead to further gains, the bank warns that it raises the risk of a downturn. Stocks with high speculative trading activity have historically outperformed in the following year but underperformed in the subsequent two years [2].

In 2025, the role of GameStop in the 2021 meme stock frenzy is being played by a new group of stocks, collectively referred to as DORK stocks: Krispy Kreme (DNUT), Opendoor (OPEN), Rocket Mortgage (RKT), and Kohl’s (KSS) [1]. These stocks have seen significant jumps in trading volumes and stock prices, driven by a mix of social media hype, short squeezes, and technical breakouts, despite little to no change in the underlying business fundamentals.

Opendoor Technologies, a company that has seen a significant stock price increase following a push from social media users, recently traded under $1. The day the news arrived that hedge-fund manager Eric Jackson’s firm, EMJ Capital, had taken a position in the stock, the stock saw consecutive double-digit percentage gains and the shares are up 333% in a month [1]. Similarly, Krispy Kreme’s trading volume surged from five million shares to 150 million in a single day, causing a market shockwave. Krispy Kreme and Kohl’s stock is up over 60% in one month [1].

The recent rise in speculative trading activity signals near-term upside risk for the broad equity market but also increases the risk of an eventual downturn, according to Goldman Sachs analysts [2]. The Speculative Trading Indicator, which shows an elevated recent share of trading volumes in unprofitable stocks, penny stocks, and stocks with rich valuations compared to revenue, has risen sharply during the past few months [2]. This indicator has historically led to stronger-than-usual returns over the next three, six, and 12 months but faltered over a two-year horizon [2].

Investors should be cautious, as the risks attached to meme stocks are certainly higher than those of other large-cap stocks that are tracked and analyzed by a large number of investors and analysts. Meme stocks run the risk of erosion of the entire capital invested in them [1].

References:
[1] https://www.financialexpress.com/business/investing-abroad-meme-stocks-frenzy-grips-wall-street-as-krispy-kreme-opendoor-sees-heavy-buying-from-retail-know-the-risks-3926674/
[2] https://ca.finance.yahoo.com/news/speculative-frenzy-raises-risk-of-stock-market-downturn-goldman-sachs-170158384.html