This morning, The Wall Street Journal posted an interesting question: “Are regional banks the new meme stocks?” The concept might have seemed outlandish a few months ago. But the timing is such that now it warrants an in-depth analysis.
The banking crisis has wreaked havoc on regional banks, shuttering companies such as First Republic Bank, which recently delisted from the New York Stock Exchange. Shares of both PacWest Bancorp (NASDAQ:PACW) and Western Alliance (NYSE:WAL) have fallen significantly, leading to speculation of the Federal Deposit Insurance Corporation (FDIC) closing in. Meanwhile, retail traders may be seeking new meme stocks to throw their weight behind following the fall of former favorite Bed Bath & Beyond (OTCMKTS:BBBYQ).
If regional banks continue falling out of favor with Wall Street, they could start to fit the r/WallStreetBets criteria. However, this doesn’t necessarily mean that PACW and WAL will be the next GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). Let’s dive deeper into this complicated topic.
The Hunt for the Next Meme Stocks
Since the GME short squeeze of 2021, investors have been looking for the next meme stocks. Failed attempts to drive up AMC and Bed Bath & Beyond haven’t discouraged them. In fact, unstable meme stock Mullen Automotive (NASAQ:MULN) allegedly has a new investor army behind it, even as the company faces severe complications. But that doesn’t mean they won’t shift their focus to other fallen companies. Yesterday, both PACW and WAL were falling and battling rumors of an encroaching FDIC death. These types of rumors can make for a tempting opportunity for the r/WallStreetBets crowd, as trading activity today suggests. Per the WSJ:
“The activity is reminiscent of the meme-stock mania of 2021, which drew hordes of traders in to play the intense volatility in names such as GameStop and AMC Entertainment. Several of those companies were heavily bet against, making them a target for individual investors and at times helping worsen their swings. During the bull market, the heavy trading helped shape the fortunes of those two companies, allowing them to raise money and—in AMC’s case—helping to save it from financial distress.”
However, there are other factors to consider when assessing the likelihood of PACW and WAL becoming the next meme stocks. Wall Street clearly isn’t too sour on either company, as is evidenced by the fact that JPMorgan Chase recently upgraded WAL to an “overweight” rating. Additionally, both stocks have been rising today on speculation that the Federal Reserve will cut interest rates in September. If it continues, both stocks could start rising and move out of meme stock territory before the next Fed meeting.
r/WallStreetBets or Wall Street’s Bets?
With the banking crisis continuing to cast dark shadows over the regional bank sector, it is hard to predict exactly what will happen over the next few months. But heavy trading activity paired with falling shares isn’t a guarantee that the r/WallStreetBets crowd will continue showing interest in it. If both potential meme stocks can keep trading until September, they could easily catch the momentum necessary to reignite Wall Street’s interest. Despite the banking crisis, big banks have already tried to bail out smaller ones, such as First Republic.
If retail investors want to bet against Wall Street, it likely won’t be accomplished by betting on smaller plays.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
