Modern (1940’s-present)
67 Effect of Social Media on the Stock Market
STS Chapter
Effect of Social Media on the Stock Market
Introduction:
Over the past decade we have seen an exponential rise of social media, with nearly every American today having access to it, spending on average 2 hours and 23 minutes per day consuming content. This has only increased, as the algorithms get more effective, and more people get drawn in. So how does this effect the stock market?
Social media apps like Instagram, YouTube, reddit, etc. allow for people to share what stocks they are investing in, and creators with a big following can cause an avalanche of people to follow their moves causing a stock to greatly increase or decrease in value. The effects of this are especially seen in smaller cap stocks, where only a little bit of buying pressure can cause the stock to double, triple, or even 10x its value in short periods of time. Most of the time the gains in these stocks don’t last very long because people end up selling to cash out, while some people are left in the dust losing lots of money after buying the stock at its peak. This has created a lot of volatility in the stock market in recent years.
Along with the influence of social media causing increased volatility, investing apps like Robinhood and Coinbase have made investing more accessible to everyday people, as apps like these have set the precedent for commission-free trading. This has allowed the everyday person to trade whenever they want, while in the past investing was more focused on long term as investing firms charged a commission every time you bought a stock, making it impractical to buy and sell on a daily basis. While this is great for empowering small investors, this along with social media influence can also lead to overhyped stocks, causing their prices to skyrocket and then crash when people start selling. This has createdbigger risks, but it also shows how regular investors can work together to challenge the power of big Wall Street firms through collective, organized moves like short squeezes.
Connection to STS:
The effect of social media on the stock market is connected to STS in many ways. First, we have had significant technological advancement in social media, with platforms like Twitter, Reddit, and YouTube, along with trading apps like Robinhood, that enable the rapid spread of financial information and influence. Everyone has a phone now to access this information, and this is thanks to technological innovation. Second, social media fosters communities where individuals share ideas and strategies. This leads to collective actions of people putting money into the same stock which reflects how technology shapes societal behaviors and group dynamics. Finally, this new era of social media influence allows for society to challenge traditional systems and create more economic opportunity for working class peoplein our society.
Chapter content/quotes/examples:
Social media had been around since the early 2000s but when did it really start effecting the stock market? People have always been trading stocks in the stock market, but it was mainly the older generations, however in early 2020 that all changed. Covid-19 shocked the world and with that the stock market crashed almost instantly and created a lot of buying opportunities with that. When everyone realized that COVID wasn’t the end of the world stocks skyrocketed back up and this is when younger people who were more risk takers with their money jumped in and started investing. With the younger people more social media friendly they started sharing their moves and investments online creating groups that would talk about specific stocks that they were hopeful and confident on being successful. This lead tosome people discovering what a short squeeze was, which is where a lot of people, mostly big wall streets investors, bet money on a stocks to lose value and go out of business. This led to someone finding gamestop a stock in which a lot of people on wall street thought was going to go out of business. In early 2021 people on reddit started posting about this stock and got millions of people to invest in it which caused the stock price to skyrocket as the investors who were shorting it before had to sell there shorts to buy the stock which caused it to go up even higher. The U. S. Securities and Exchange Commission states that “GameStop Corp and multiple other stocks experienced a dramatic increase in their share price in January 2021 as bullish sentiments of individual investors filled social media.” (add source) This caused the stock price to go from around 10$ to around400$ in a matter of days. This made some individuals millions of dollars
Another way social media affected the stock market was when elon musk started tweeting about dogecoin and how it was the future of currency. This skyrocketed the price of this crypto called dogecoin where the price of it went up 1000%s of percent. This put into question whether some people with big following have too much influence over the markets.
One of the missing voices in the investing world is women as men are typically in charge of the finances in the household. Recently, however, “67% of women were investing outside of their retirement accounts, up from 44% in 2018.” (fidelity investments). One of the biggest women voices in the investing world that has emerged is Cathie Wood. Her voice has emerged as she has a unique way of looking at investing where she only invests in companies who have disruptive innovation which many people look at being more risky investments as they are usually newer companies. She also likes to buy when stocks are dropping which is also very different than many investors as most people only invest when prices are going up. “Cathie Wood invests in disruptive innovation, but that isn’t her only strategy. She also chooses opportunities that others turn their noses up at – when share prices drop, she buys in.” (Add Source) She has more of a high risk high reward strategy. “In 2021, Cathie Wood’s ARK Innovation ETF (ARKK) experienced significant gains in line with broader trends in technology and innovation-driven stocks. During that year, ARKK achieved a 55% year-to-date gain, outperforming major benchmarks like the Nasdaq 100”
Conclusion:
References:
https://medium.com/@rohanshah0502/the-influence-of-social-media-on-stock-market-trends-feed4365f64e
