Albert Einstein once said: “Two things are infinite: the universe and human stupidity.”

Which brings me to meme trading over GameStop (NYSE: GME), and the uncanny persistence of the “dumb money” on Wall Street.

The long-running drama over GameStop starts a new episode Friday, when shares begin trading in the wake of the company’s four-for-one stock split on Thursday.

Based on social media chatter, a coterie of meme stock traders intend to use the video game retailer’s stock split to cause a short squeeze. GameStop continues to benefit from meme traders.

GameStop’s stock remains heavily shorted, with 21% of its shares sold short. The stock has gained about 30% so far in July. GME shares fell Thursday, which suggests profit taking ahead of the big day on Friday.

GameStop originally announced its plan to split shares back in March. A stock split occurs when a company increases the number of its shares to boost the stock’s liquidity. The number of shares outstanding increases by a specific ratio but the total dollar value of all shares outstanding remains the same.

A stock split doesn’t fundamentally alter a company’s value and theoretically it’s a non-event. If you cut a sandwich in half, it’s still the same sandwich.

However, unless you live in a cave, you’re familiar with the high-stakes scuffles over GameStop. The company has become a household name, but not for positive reasons that have anything to do with its actual business model. In fact, as a bricks-and-mortar retailer of obsolete physical products, GameStop is a dying business.

Last year’s insurrection…

To refresh your memory, the saga began in early 2021. GameStop’s management started making efforts to turn around the company. Hedge fund short sellers were betting against the company’s chances.

Traders who avidly converse on social media noted that GameStop’s stock was heavily shorted and decided to scoop up shares to drive up the price and force the hand of short-sellers. These insurrectionists wanted to punish the pessimists, partly out of anti-establishment spite and partly (of course) out of greed.

The herd mentality quickly spread on social media and GameStop’s stock exploded on the upside, rising high enough to force the huge hedge funds to jettison their positions and lose billions of dollars.

The stock quickly fell back to earth, although in recent weeks it has shot higher due to aggressive speculation by meme traders, who tend to be younger and inexperienced (and, I might add, shockingly illiterate when it comes to basic finance).

In June 2022, GameStop reported a $157.9 million net loss for fiscal first-quarter earnings, which is worse than the $66 million net loss in the year-ago quarter.

The lesson in all this? Avoid fad investing. Don’t follow the dumb money. Now, let’s look at the latest data of interest for serious investors.

Watch This Video: Has The Stock Market Stabilized?

Stocks finished higher Thursday, extending their rally. In pre-market trading Friday, the major U.S. indices were modestly higher. The averages hover at six-week highs and they’re closing out a positive week.

The tech-heavy NASDAQ has regained the 12,000 mark and so far in July the index has gained nearly 10%.

Solid news on corporate earnings and the economy have been fueling equity gains. Over the past week, hawkish monetary policy in the U.S. and overseas hasn’t deterred the bulls, but sometimes in the stock market, bad news is good news. Investors seem reassured that central bankers are taking inflation seriously.

Commodity prices continue to fall, which suggests that next month’s consumer and producer price data will be more sanguine, especially for energy and food. Prices for agricultural goods and crucial industrial metals have been tumbling across the board, a sign that inflation isn’t becoming deep-rooted.

Crude oil prices have fallen below $100 per barrel and Russia has resumed natural gas deliveries to Europe after a (supposed) maintenance stoppage, alleviating fears of an energy crisis on the Continent.

Less pain for consumers…

Consumers are experiencing less pain at the pump, with the national average price of gas in the U.S. currently hovering at $4.41 per gallon. Consumer sentiment has understandably taken a beating lately but falling gas and food prices should improve the collective mood and buttress overall consumer spending.

An inflation data point that stands out for me right now is the falling cost of producing vehicles. As raw materials prices slip, the average cost to manufacture a typical vehicle has ticked downward (see chart).

The above chart provides a ray of hope on the inflation front. As for the automotive industry, we’ll get a better idea of its health over the next several days. From July 26 through August 4, several original equipment manufacturers are scheduled to release Q2 report cards as well as interim sales data for July.

Overall for the S&P 500, second-quarter corporate earnings have exceeded expectations and projections for the rest of the year have held firm.

Guidance has predictably warned that unless inflation abates, profit margins will get dinged in future quarters. Q2 margins already are under pressure from inflation. That said, management commentary on conference calls still suggests resilient demand.

The economic news continues to be good as well. The most recent data on initial jobless claims in the U.S. showed a slight rise to 251,000 this week, from 242,000 last week, but the labor market remains robust.

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John Persinos is the editorial director of Investing Daily.

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