Meme Stocks Signal Overexuberance in the Market

The latest meme stock episode signals a few things about the broader stock market setup. Market pros believe the seemingly irrational exuberance doesn't portend a coming crash like the end of the 2021 meme stock boom. The recent rally of meme stocks like Opendoor, Kohl's, and Krispy Kreme, despite shaky financial footing, indicates investor sentiment is approaching euphoric levels and extreme bullishness.

The latest meme stock episode, which saw companies like Opendoor, Kohl's, and Krispy Kreme soar in a short-lived rally, has provided insights into the broader stock market setup. Market professionals believe this seemingly irrational exuberance does not signal an impending crash, unlike the 2021 meme stock boom [1].

The rally, which sent the so-called "DORKs" (Opendoor, Kohl's, Krispy Kreme, GoPro, and Dork) higher over Monday and Tuesday, appears to have tapered off. Opendoor, for instance, surged 473% over the first three weeks of July but dropped more than 20% by the closing bell on Wednesday. Kohl's, which spiked as much as 87% on Tuesday, dropped 14%, while Krispy Kreme fell 27% from its peak [2].

Market pros have identified two key takeaways from this latest meme stock craze:

1. Investors are Overexuberant: The latest infatuation with meme stocks indicates investor sentiment is approaching euphoric levels. Retail participants are ignoring fundamentals, as evidenced by the shaky financial footing of many of the DORKs. Opendoor reported a 26% yearly revenue decline in 2024 and a net loss of $392 million [2].

2. It's Not a Signal of Pain to Come: Unlike the 2021 meme stock craze, which was followed by a painful bear market in 2022, this recent rally is not a sign of impending market pain. Retail-driven speculative rallies like this one are often short-lived bursts of euphoria. Much of the optimism pushing the broader market to all-time highs is due to strong company financials and robust economic data [2].

In conclusion, the latest meme stock episode provides a snapshot of the current market sentiment. While it indicates extreme bullishness, it does not necessarily portend a coming crash. For investors, it's a reminder to stay disciplined and focus on fundamentals.

References:
[1] https://www.ainvest.com/news/meme-stock-investing-2025-evaluating-sustainability-retail-driven-rallies-undervalued-equities-2507/
[2] https://www.businessinsider.com/meme-stocks-opendoor-kss-dnut-gpro-dork-stocks-market-rally-2025-7