TL; the short human answer

Both forces are in play. Retail enthusiasm — including meme-style trading, social-media driven squeezes, and heavy option activity — is clearly a meaningful engine behind short-term, headline-grabbling rallies. At the same time, real fundamentals (big tech earnings, tighter industry leadership, and institutional repositioning) are doing heavy lifting too, especially at the index level where a handful of mega-caps carry outsized weight. Which force matters more depends on the time horizon: retail/speculation explains a lot of the short-term volatility and some stock-level spikes, while fundamentals explain the longer, more durable moves in major indexes.

What the evidence shows — concrete signals

Retail flows and trading activity are up.

Data from mid-2025 show retail investors reversing a period of net selling and buying several billion dollars of equities in short stretches — plus heavy ETF inflows that are often retail-driven. That volume matters: it increases the probability of outsized moves in individual names and can sustain rallies even when institutions are hesitant.

Meme-stock episodes are back and loud.

Multiple reputable outlets documented a resurgence of meme-style rallies in 2025 — dramatic, social-media driven spikes in names that often have weak fundamentals but big retail followings. These moves can distort market psychology: they attract headlines, invite more retail interest, and sometimes cause short-term index bumps if enough attention concentrates on several medium-sized names.

But mega-caps & earnings matter a lot for index gains.

A few very large companies (the mega-caps) still dominate major indices. Strong revenue/earnings beats from these firms, plus positive analyst revisions, are a central reason the S&P/Nasdaq have climbed — that’s fundamentals, not pure social media buzz. When these companies rally, indexes move even if the majority of stocks don’t.

Institutions are repositioning too (not absent).

It’s not just retail: institutional flows and hedge-fund positioning matter and are active — for example, hedge funds and professional managers have been buying into certain sectors (e.g., banks, financials) and leveraging trades. That institutional activity can underpin a trend’s durability.

Why both phenomena can coexist (and amplify each other)

• Index concentration: When a handful of mega-caps gain strongly on solid fundamentals, headline indexes rise. Retail traders see the wins and either jump into those mega-caps or hunt for similar “next-in-line” plays — fueling meme interest.
• Low rates / liquidity backdrop: Easier financial conditions and plentiful liquidity make speculative activity more likely: retail traders deploy options and social narratives; institutions chase earnings stories and rotation plays. The macro backdrop amplifies both fundamental rallies and speculative surges.
• Feedback loop: Meme rallies create volatility and attention; attention breeds flows; flows lift prices; higher prices attract more attention. Separately, good earnings and institutional buying create steady upward pressure. Together, they can make markets feel “unstoppable” even if under the surface things are uneven.

How to tell whether strength is speculative or fundamental (practical checks)

• Breadth measures: Are more stocks participating or only the largest names? Narrow breadth = more likely index gains are concentration-driven.
• Advance/decline line vs. market cap-weighted index: If the cap-weighted index is up but the equal-weighted index or advance/decline line lags, that’s a concentration story (often heavy retail/meme influence at the stock level).
• Options & zero-day activity: Surges in very short-dated options volume and zero-day puts/calls often point to speculative plays and retail momentum.
• Earnings revisions & fundamentals: Are analyst forecasts and earnings revisions improving? Sustained upward revisions suggest fundamentals are catching up.
• Flow data: Net retail flows into equities/ETFs versus institutional flows — if retail flows dominate, expect more episodic volatility.

What this means for investors — a few practical, humane rules?

• Short horizon (days–weeks):Expect higher volatility and headline swings driven by retail/meme activity. If you trade short term, use tight risk controls — don’t let FOMO drive size.
• Medium horizon (months): Watch earnings, revisions, and breadth. If earnings and breadth improve, rallies are more likely to be durable. If breadth stays narrow, the risk of a sharp pullback increases.
• Long horizon (years): Fundamentals generally win. Stick to quality, diversification, and valuation discipline. Avoid making big allocation changes purely on the basis of meme narratives.
• Opportunistic approach: If you like speculative trades, size them as a small, explicit “casino” sleeve of the portfolio — money you can tolerate losing. Keep the core invested in diversified, fundamentally sound holdings.
• Use protective tools: Hedging, stop losses, or option overlays can limit downside in a market where retail-driven spikes produce whipsaw action.

Final human takeaway

Think of the market right now as a busy stage with two performances at once: a disciplined orchestra playing the fundamental score (mega-caps, earnings, institutional repositioning) and a rowdy flash-mob doing viral dances on the side (retail, meme stocks, option frenzies). Both affect the same theater — sometimes the orchestra leads, sometimes the mob steals the spotlight. Your job as an investor is to know which show you’re attending and size your bets accordingly.

If you want, I can now:

• Pull live breadth indicators (advance/decline line, equal-weighted vs cap-weighted returns) for the S&P 500 and show whether the recent gains are broad, or
• Build a short table showing recent net retail flows vs institutional flows and list recent high-profile meme episodes — so you can see the numbers behind the story.