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Meme stock Bed Bath & Beyond crashes more than 40 percent

The struggling retailer’s shares have been sliding since billionaire investor Ryan Cohen signaled plans to dump his holdings

Bed Bath & Beyond shares have been falling ever since one of its biggest investors moved to sell his holdings. (Joe Raedle/Getty Images)

Bed Bath & Beyond plunged more than 40 percent Friday as investors put a hard stop on the meme stock’s meteoric rise, highlighting the volatility and immense risk that has defined a new era of social-media fueled investing.

But Wall Street punished both meme stocks and blue chips as investor sentiment soured, dragging down the major indexes. The S&P 500 snapped a four-week winning streak, ending a summer rally fueled by fresh rounds of positive economic data that had quieted some fears of a recession.

The Dow Jones industrial average fell more than 292 points, or 0.9 percent, to close at 33,706.74. The broader S&P 500 lost 55 points, or 1.3 percent, to land at 4,228.48, while the tech-heavy Nasdaq tumbled 260 points, or 2 percent, to end at 12,705.22.

Investors are still grappling with the uncertain direction of the nation’s economy, with federal data offering conflicting insights. Earlier this month, analysts were stunned by a blowout jobs report, revealing a hot labor market that strengthened more than expected and employers adding 528,000 jobs. But government data released days before also showed the economy had contacted for the second consecutive quarters, a common marker of recession.

Why Bed Bath & Beyond shares spiked more than 350 percent this month

How aggressively the Federal Reserve will move to combat inflation and the pace of price increases, which eased in July, remain front of mind for Wall Street. Stocks have pushed upward in recent weeks, in part, with investors buoyed by a growing sense that central bankers can successfully tame inflation without tipping the economy into a recession.

Corporate powerhouses like Apple, Microsoft and Amazon have enjoyed double-digit gains over the past several weeks, recovering some of their losses for the year.

Then there’s Bed Bath & Beyond. It had soared more than 350 percent this month riding a wave of excitement from small investors after billionaire investor Ryan Cohen took a large stake in the struggling retailer. But the stock has been pushed into a days-long free fall ever since the GameStop chairman signaled he would dump his shares. They tumbled 19.6 percent on Thursday and skidded another 40.5 percent on Friday, closing out the week at $11.03. That’s still more than twice where it stood earlier this summer, before the meme stock rally.

“Bed Bath & Beyond’s stock is disconnected from the fundamentals,” said Seth Basham, an analyst who covers retail stocks for Wedbush Securities. Cohen’s withdrawal was a major catalyst in downgrading the stock, he said, as one of the company’s chief instigators for a successful turnaround changed their position.

Student, 20, makes $110 million trading meme stock Bed Bath & Beyond

Cohen’s RC Ventures confirmed in a regulatory filing that he sold his entire stake in Bed Bath & Beyond. He made a profit of more than $58 million, according to MarketWatch, after selling 7.78 million shares at weighted average prices ranging from $18.68 to $29.22.

Bed Bath & Beyond stock has now lost more than half of its value since its recent peak, when it climbed well above $20 per share. The roller coaster movements and huge trading interest echoes the 2021 meme stock frenzy, when many novice investors, lured by the hype and potential for enormous gains, ended up losing big.

Just last month, the troubled housewares chain was trading near $5. But investors poured in, buying into an optimistic view of the company or simply banking on a cycle of further speculation and higher prices, echoing the staggering rush into stocks such as GameStop, AMC and BlackBerry that took Wall Street by surprise last year.

Cohen, who co-founded the online pet supply company Chewy, has significant sway with small investors because of the pivotal role he had in GameStop’s rise. He took a major stake in it in 2020 through RC Ventures even though the gaming chain had been written off as a relic of an earlier era, one when a massive retail footprint was essential and when consumer interest was defined by Black Friday crowds and blockbuster game releases.

Cohen offered investors a future-oriented vision for the gaming retailer, focused on digital sales, esports, streaming and mobile gaming. His view caught on, sparking interest on web forums where a collective optimism set in, and where many saw an opportunity for big gains by betting against the institutional wisdom of Wall Street. His interest in Bed Bath & Beyond generated comparable enthusiasm.