Beware of Social-Media-Hyped Stocks

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People who manipulate stock prices are using social media in a big way.

Since the pandemic caused many people to stay home on most days, there has been a sharp increase in day trading and other forms of short-term trading. The trading app Robinhood received a lot of the early attention.

But new research has indicated that individual traders are discussing, promoting and hyping stocks on various social media sites, including Reddit, TikTok, Twitter, Facebook, Instagram and more. This is a large-scale expansion of the internet chat rooms that boosted tech stocks in the 1990s.

The result is a number of low-priced stocks with small market capitalizations that rapidly generate momentum. Some stock prices are doubling and tripling over short periods.

The Wall Street Journal recently documented how increased social media commentary coincided with a rapid rise in the stock of China-based electric vehicle manufacturer NIO (NIO). The stock’s price moved from less than $4 early in 2020 to a recent price above $62. The company now has a higher market value than General Motors.

Other stocks whose prices soared and were accompanied by an increase in social media mentions were discussed in the article.

In one Reddit group focused on low-priced stocks, the moderators recently banned discussions of cryptocurrencies as well as references to other social media accounts and services or newsletters that discuss stocks.

Investors who are chasing these stocks with parabolic price moves need to carefully consider what is fueling the price increases and how long they can be sustained.

Watch for Higher State, Local Estate Taxes

Most states eliminated their estate and inheritance taxes in recent years, but not all have.

Currently, 17 states, plus the District of Columbia, have estate or inheritance taxes. Some of those states are looking at raising the taxes and more are likely to follow.

In the most recent move, Washington, D.C. reduced its estate tax exemption to $4 million from $5.67 million. Also, Hawaii increased its tax rate on estates valued over $10 million.

The trend in recent years has been for states to eliminate their estate or inheritance taxes or increase the exemption levels. Three states (Maine, New York and Rhode Island) have inflation adjustments that automatically increased their 2021 exemptions by modest amounts.

But revenue shortfalls and expense increases resulting from the pandemic are causing some states to consider reversing these trends.

For full information on current state inheritance and estate taxes, see this Forbes.com article.

A Bitcoin Story

Bitcoin’s price has been on the rise, and that’s attracting a lot of media and investor attention.

In its short history, Bitcoin’s price has been extremely volatile. Large gains were followed by extreme losses. Bitcoin rose to a historic high in 2021 and built on a significant increase in the last part of 2020, though it declined 10% in the last two days.

Most stories about Bitcoin don’t do a good job explaining details about the digital currency, how it works and why people are attracted to it.

If you’re interested in more details, read this article by a financial professional who bought Bitcoin in its early days, quit his job after a while to become a “Bitcoin miner” and had to shut down his mining operation because it was straining the local electric power grid.

He’s now back to being a financial professional but closely follows Bitcoin developments. In the article, he discusses several technical developments over the years that changed Bitcoin from a form of digital currency to something that can only be bought and held or sold. It can’t be used in transactions anymore.

The author concludes that the recent price surge in Bitcoin is a bubble and probably more due to fraud than anything else.

The Data

New unemployment claims declined by 26,000 to 900,000. That’s after last week’s number was revised down to 926,000, 39,000 lower than the figure first reported.

Continuing claims declined by 127,000 to 5.05 million.

A little less than 16 million people were receiving some kind of unemployment benefit, which is down from 18.4 million reported last week. But the number is likely to rise, because Congress recently passed an extension of unemployment benefits.

Retail sales declined by 0.7% in December, following a revised 1.4% decline in November. Excluding vehicles and gas, sales declined 2.1% in December and 1.3% in November.

December was the third consecutive month of retail sales declines.

Spending declined at online retailers, which had been the strongest retail sector for some time. Major declines also occurred at bars and restaurants, electronics, grocery and department stores.

There were sales gains in home improvement, health and personal care, clothing and gasoline.

The Producer Price Index (PPI) increased 0.3% in December compared to 0.1% in November. It is up only 0.8% over 12 months.

Excluding food and energy, the PPI was up only 0.1% in December but 1.2% over 12 months.

The Empire State Manufacturing Index was 3.5 in January compared to 4.9% in December. This indicates manufacturing was growing in January, albeit at a slower rate than in December.

The Philadelphia Fed Manufacturing Index was 26.5 in January, a significant improvement from 9.1 in December. Also, the December number was revised down from the original 11.1.

Industrial Production increased 1.6% in December, up from 0.5% in November. But the manufacturing segment increased only 0.9% in December.

Consumer Sentiment, as measured by the University of Michigan, continued to decline in January. It was 79.2, compared to 80.7 in December.

Home builder optimism declined again. The Housing Market Index from the National Association of Home Builders (NAHB) was 83 in January, compared to 86 in December. A level above 50 is considered positive, but two months ago the index was at a record 90.

Builders aren’t concerned about demand for new homes. Instead, they have cited rising prices and reduced supply for lumber and other supplies. They’re also concerned about shortages of labor and affordable building lots.

Housing starts increased by 5.8% in December from November’s level. They increased by 5.2% over 12 months.

But single-family home starts increased 12.0% in December from November.

The Markets

The S&P 500 rose 1.08% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 0.41%. The Russell 2000 increased 2.21%. The All-Country World Index (excluding U.S. stocks) added 1.40%. Emerging market equities edged up 2.93%.

Long-term treasuries declined 0.12% for the week. Investment-grade bonds decreased 0.13%. Treasury Inflation-Protected Securities (TIPS) added 0.54%, while high-yield bonds gained 0.29%.

In the currency arena, the U.S. dollar increased 0.12%.

Energy-based commodities gained 0.23%. Broader-based commodities lost 0.48%. Gold rose 1.19%.

Bob’s News & Updates

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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.