What Happened?
Shares of doughnut chain Krispy Kreme (NASDAQ: DNUT) jumped 11.2% in the afternoon session after it became the latest company swept up in a "meme stock" rally driven by retail investors on social media.
The doughnut chain's stock surged without any specific company news to justify the move. Instead, the rally was fueled by a social media frenzy, particularly on platforms like X (formerly Twitter), where retail traders targeted the stock. Krispy Kreme became a prime candidate for this type of activity due to its high short interest, which was reported to be over 28% of its publicly traded shares. This phenomenon, known as a "short squeeze," occurs when a heavily shorted stock's price is driven up, forcing investors who bet against it to buy shares to cover their positions, which in turn pushes the price even higher. The surge happened despite recent negative developments for the company, including disappointing first-quarter earnings and the termination of a partnership with McDonald's.
After the initial pop the shares cooled down to $4.26, up 2.8% from previous close.
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What Is The Market Telling Us
Krispy Kreme’s shares are very volatile and have had 26 moves greater than 5% over the last year. But moves this big are rare even for Krispy Kreme and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 16 days ago when the stock dropped 6.1% on the news that the major indices pulled back (Nasdaq -0.8%, S&P 500 -0.77%), largely due to escalating concerns surrounding the July 9th deadline for new US tariffs, amplified by specific announcements.
Earlier in the day, President Trump confirmed that Japan and South Korea would face new 25% tariffs on their imports to the US, effective August 1st. These announcements came ahead of the broader July 9th expiration of a 90-day pause on reciprocal tariffs, which failed to produce comprehensive trade deals with most nations. This action against two major trading partners, coupled with the ongoing threat of further tariffs on countries associated with the BRICS bloc, injected significant uncertainty and apprehension into global markets. Investors were likely reacting to the increased costs for businesses, potential disruptions to global supply chains, and the broader implications for international trade relations.
Krispy Kreme is down 56.1% since the beginning of the year, and at $4.26 per share, it is trading 65.7% below its 52-week high of $12.42 from November 2024. Investors who bought $1,000 worth of Krispy Kreme’s shares at the IPO in June 2021 would now be looking at an investment worth $203.33.
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