The FBI director just spurred a brief Krispy Kreme rally

By John Towfighi, CNN

(CNN) — FBI Director Kash Patel spurred a fierce but fleeting rally in Krispy Kreme shares (DNUT) on Wednesday after he said the stock was a solid investment.

The comment came during Patel’s testimony before the House Judiciary Committee on Wednesday. Colorado Rep. Joe Neguse asked Patel about his decision to purchase individual stocks — including Krispy Kreme and semiconductor company ON Semiconductor (ON) — and the FBI director said he thought they were good buys.

“Generally speaking, before I got this job, I was trading stocks, but not a lot like most people,” said Patel, who started his post in February.

“I just follow certain industries, and I thought they would be a good investment,” he added.

Stock traders were apparently listening: Krispy Kreme shares jumped as much as 11.5% after his comments. The rally was brief, and shares ended the day higher by just 0.96%, erasing nearly all the earlier gains.

The rise after Patel’s remarks is emblematic of the mania gripping markets this year. Traders are driving rallies in specific stocks not based on fundamentals but on hype and a sense of virality.

Shares in the North Carolina-founded doughnut chain are down 68% this year, but they had gained this summer as part of the so-called meme stock craze. The second best day on record for Krispy Kreme shares happened July 22 — when the stock soared 26.7% in one day — before the rally fizzled out.

Federal employees are allowed to trade stocks and are subject to disclosure and ethics requirements. Patel said he submits proposals under Department of Justice guidance before purchasing stocks.

Patel purchased $15,000 to $50,000 worth of Krispy Kreme shares on May 9, according to financial disclosures filed this summer with the Office of Government Ethics. Krispy Kreme shares have risen about 15% since Patel picked up the stock in May.

In addition to Krispy Kreme shares, Patel on May 12 bought $50,000 to $100,000 worth of shares in ON Semiconductor. Shares in the company have risen about 12% since Patel bought them.

The FBI declined to comment. CNN has reached out to the DOJ for comment.

The exchange about the FBI director’s investments comes after members of the House introduced a bill to ban members of Congress from trading stocks. During his testimony on Wednesday, Patel said he’d work with Neguse, the Colorado congressman, on the bill.

The advance in Krispy Kreme fizzled out just as quickly as it started. Steve Sosnick, chief strategist at Interactive Brokers, said that while Krispy Kreme as a company is more than just a meme stock, the rally exemplifies the momentum-driven trends in markets this year.

“It’s emblematic of the approach that a lot of speculators have to the market and how they will jump on any piece of positive-sounding news and how that can create self-fulfilling rallies, at least in the short term,” Sosnick said.

“The reaction just shows you the level of froth in the market… the rally basically faded almost as quickly as it started, because it was based really on not much,” he said.

“There’s a difference between investing and just sort of chasing stories, and this falls into the latter,” Sosnick added.

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