Monday, October 18, 2021

Rethinking the Meme Trade

 

By Alex Eule |  Monday, October 18

Rewind. With markets generally flat for most of the day, it was a good day to reassess a few themes. We discovered that GameStop and so-called meme stocks may not have been as disruptive a story as we thought, cryptocurrencies are about to go mainstream, and department stores are cool again. 

The department store story is a funny tale about how investors assign value. This morning, The Wall Street Journal reported that once beleaguered Saks Fifth Avenue is planning an initial public offering of its e-commerce business and hoping for a valuation of somewhere around $6 billion. E-commerce isn't exactly new, but the number caught everyone by surprise. Less than two years ago, Saks was taken private in a transaction that valued the entire company at $1.5 billion. That was before the pandemic re-ordered the way we shop. 

The news sent department stores flying, notably Macy's which closed up 17.5%. Macy's has been facing recent calls to spin off its own e-commerce unit. The company declined to comment to Barron's, but  today's rally could force its hand. At $28, Macy's shares are now up 363% over the last 12 months. That has made the stock a big win for day traders, but not so much for long-term shareholders. Back in 2015, Macy's traded as high as $70.  

The e-commerce excitement provided tailwinds across the consumer discretionary sector, which was the best performing part of the S&P 500, rising 1.2% on the day, boosted, in part, by Gap (+4.6%) and Target (+3.2%).

Elsewhere, it was another strong day for tech stocks. Apple rose 1.2% after announcing two new MacBook computers that will be powered by the company's own processing chips. My colleague Connor Smith highlights how Apple is increasingly standing out for its chip-making prowess, complicating life for onetime partner Intel. Shares of Intel were flat on the day, even as the tech-heavy Nasdaq Composite rose 0.2%

After a period of weakness, the Nasdaq is once again leading the way. It's up for four consecutive sessions, rising 3.8% during that time. The index is now just 2.3% off its September all-time high. The S&P 500 and Dow Jones Industrial Average, which were mixed in today's trading, are each about 1% off their record peaks. 

Tomorrow's trading highlight could be Bitcoin, which is about to get its very own exchange-traded fund. It's a big moment for the volatile cryptocurrency, which could gain more widespread ownership through the ETF structure. Barron's Avi Salzman calls it "the culmination of eight years of failed attempts to wrap the volatile digital asset in Wall Street’s favorite package." 

"Even those who are skeptical about the products that are about to launch expect them to draw billions of dollars in assets," Avi adds.

There's an important caveat, though. The ETF holders won't hold any actual Bitcoin. The ETF is designed to track future contracts tied to Bitcoin trading. Read Avi's story on why that distinction will be important to remember

 

 


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