Will inflation ruin the “Meme Stock” rally?

The market fell this morning as “memes stocks” once again stole the show. Shares of AMC Entertainment (NYSE: AMC) and GameStop (NYSE: GME) both impressed, posting double-digit gains shortly before noon.

Some analysts say they could go higher despite recent momentum. Interactive Brokers chairman Thomas Peterffy believes that, despite the two companies’ overrated appearances, now is not exactly a good time to be a bear.

“It is extremely tempting to sell these stocks short, but unless you have enormous liquid resources, try to resist the temptation, as these prices can reach unimaginable highs before settling at a reasonable valuation. , and you may need to cover the high point, ”Peterffy said.

“In the long run, stocks always move closer to their core values, which in this case are much, much lower. “

Don’t tell retail speculators that, however, who insist their due diligence has revealed a path to even higher valuations. Reddit’s WallStreetBets investors are streamlining greener pastures through fundamentals, technical analysis and options trading activity.

Will they be proven again? It is certainly possible.

Professional strategists are also embarking on longer-term bullish hopes.

AMC is building a “strategic war chest” by selling stocks according to B analyst Riley Eric Wold.

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“In addition to our continued expectation that AMC could improve its balance sheet and future cash flow through debt buybacks / repayments, we may now see either acquisitions of smaller exhibitor chains or the repossession of leases from stricken chains, ”Wold added.

He is absolutely right; “meme stock-mania” probably saved AMC and GME.

But it could also be a sign that the mega-rallies are over as the two companies break through the speculative blitz.

“The graduation of these top pilots could be the start of the end of their epic race,” said Wells Fargo analysts Christopher Harvey, Gary Liebowitz and Anna Han.

What could also spoil the fun is the highly anticipated May Consumer Price Index (CPI) revelation, scheduled for Thursday. Inflation data is expected to turn strong after rising 4.2% year-over-year in April. The consensus estimate for the May CPI shows a 0.4% increase in headline and core inflation on a month-over-month basis, bringing the increase in the year-on-year CPI to 4.7% and 3.4%, respectively.

If expectations are met, the core CPI and the headline CPI will have reached their highest levels since late 2008.

“This will undoubtedly be the most watched data release this year so far,” Deutsche Bank analysts wrote in a note to clients.

Bank of America economists, who correctly predicted that a jobs report would “miss” in May, believe inflation will be higher than consensus, rising 0.5% MoM.

And even if they’re wrong, anything that comes close to the consensus estimate would likely shock stocks. Bulls have long feared the Fed’s “conical talks”.

An out of control housing market and stock market bubble have already convinced many Fed officials that it might be time to start this discussion.

Add a sense of “hot” inflation into the mix, and you have the makings of the next market tantrum.

All this while Russia works quickly to decouple from a sinking dollar.

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