It’s a junk rally!

Not in high yield (well, there too now that you mention it), but rather in tech shares, where the “worst” of the worst are leading this year’s surge, and a new brand of meme stock has emerged.

Over the past two weeks, I’ve documented the extent to which this year’s “grab and chase” dynamic in equities has manifested in disconcerting ways that recall some of the pandemic era’s most egregious bouts of mania.

Consider, for example, the snapshot below, which shows January’s rally (“%YTD” column) across a variety of thematic baskets associated with speculative investor behavior. Note the juxtaposition with the one-year percent change column (far right-hand side).

This year’s financial conditions easing impulse “has already been equivalent to multiple rate cuts versus prior expectations,” Nomura’s Charlie McElligott said.

The Fed is running a very real risk of rekindling not just “animal spirits” in the traditional sense of the term, but the kind of nonsensical, nihilistic behavior that brought us the GameStop saga.

Now, thanks to ChatGPT, AI-associated stocks are prone to ridiculous price action reminiscent of late 2017, when all you had to do to engineer large gains in your shares was append an allusion to blockchain to your mission statement.

BuzzFeed is an amusing amalgamation of meme manias. It went public during the SPAC merger frenzy, and it recently rode the AI wave to triple-digit gains. The stock jumped more than 100% during a single day late last month due (solely, as far as I can tell) to a plan for “AI-inspired content,” which will become “part of [the] core business,” to quote CEO Jonah Peretti.

I don’t know what that’ll mean for BuzzFeed’s carbon-based employees, but the company announced a 12% staff reduction in December, citing the economy. The stock fell more than 90% from the post-merger highs, so the AI-driven surge was a welcome reprieve, although it looks as though it could prove fleeting.

Of course, it’s not just the likes of BuzzFeed and BigBear.ai that are swept up in the narrative. The mega-caps are in on it too, including and especially Microsoft, which this week unveiled a new version of Bing, likely powered by ChatGPT. Microsoft has invested more than $13 billion in OpenAI. Baidu got a big bump from plans to roll out a competing AI.

“Since the mega-cap tech names all have some interest in the AI space, it has made them prime candidates for speculation,” JonesTrading’s Mike O’Rourke said. “Less than a week ago, investors were concerned about the slowdown in Microsoft’s cloud growth, now the company is a $2 trillion AI play that drove 20% of the S&P 500’s [Tuesday] gain,” he went on, noting that simply announcing the ChatGPT-Bing integration resulted in an $80 billion market cap increase.

“[This] is why speculation loves story stocks,” O’Rourke went on. “They don’t need to deliver until some point in the distant future.”