ANALYZING THE IMPACT OF ONLINE INTERNET INFLUENCERS AND SOCIAL SENTIMENT IN THE 2020-2021 US STOCK MARKET

Abstract

This paper explores the unprecedented market inflation experienced in the United States following the Covid-induced recession in 2020. The surge in market values, with the NASDAQ and S&P increasing by 136% and 103% respectively from March 2020 to December 2021, created opportunities for previously unknown penny stocks to rise dramatically in value. This surge also led to the emergence of "gurus" and personalities in the social media market, attracting new and inexperienced investors. While these gurus appeared knowledgeable and successful due to their timely entry into the market and the overall bullish sentiment, their success was largely fueled by the market's euphoria rather than accurate predictions of undervalued stocks. Companies like Open door, Lemonade, Tilray, Peloton, and Tesla experienced significant value declines after the market sentiment shifted to fear, panic, and doubt in the summer of 2021, accompanied by increasing inflation, tightening interest rates, and geopolitical turmoil. The downfall of these influencers revealed the fallacy in their valuation models and predictions, as investors realized that their reasons for stock increases were not based on actual market drivers. However, it is important to note that these influencers were driven by naivete rather than ill-intent or malevolence. Their impact on the investing community was significant, fueling retail participation and bringing about unprecedented moments in the market. The subsequent bear market in 2022 served as a valuable lesson for many investors, emphasizing the importance of self-belief, due diligence, and the influence of fear, uncertainty, and doubt (FUD) on rational thinking and valuations.