The GameStop bubble has come and gone, but the budding investors speaking emoji and Reddit may be here to stay with big implications for brokerage firms, as well as traditional investors who need to pay closer attention to where this fast-moving, smartphone-app-wielding crowd then continues.
“We believe some of the new retail activity is indispensable,” a Bank of America analytics team wrote in a report to customers.
The Bank of America team found that the unprecedented surge in brokerage app downloads during the GameStop mania is continuing at a rapid pace this month, even as the GameStop transaction itself has now been forgotten. Data from Credit Suisse shows that as a share of total market activity, retail has accelerated in recent months and has now doubled from the beginning of last year.
In addition, with the potential for another round of stimulus checks this month, another wave of cash from these new investors could lie ahead.
Retail has gained momentum since the industry-wide decision to drop commissions in the fall of 2019. Since then, the pandemic market volatility has brought new investors into the equities world, sometimes for the first time. Working from home, incentive checks, and higher personal savings levels, as well as social media platforms like Reddit, have only accelerated the retail boom.
According to app market intelligence company SensorTower, there were 3.7 million downloads of Robinhood in January, even with the millennials’ beloved stock trading app’s unpopular decision to impose trading restrictions on a handful of stocks during GameStop’s climb. After the GameStop drama in February, downloads are still heavily tracked with 1.8 million months to date.
Traditional brokers such as Charles Schwab and E-Trade also saw an influx of new clients, as did newcomers such as Webull. Download levels far exceeded retail participation during the Covid-19 pandemic.
Retail trade has doubled since last year
According to Credit Suisse, the retail trade’s share of total activity has nearly doubled since the beginning of 2020 from between 15% and 18% to more than 30%. The graph shows a spike in activity in recent months.
Wall Street firm estimates the total retail and wholesale share of US trade volume since 2017, using TRF, or trade reporting facility volumes, as a proxy for retail investments. It includes retail transactions routed to market makers as well as dark pools – these are private forums for trading. The vast majority of retailers (90%) are reported to the facility.
Trade in general has doubled since last year. About 15 billion shares are traded every day, up from 7 billion last year, according to Piper Sandler.
“Doubling with retail being a greater percentage of that double in the market,” Piper Sandler analyst Richard Repetto told CNBC earlier this week.
Retail investors were specifically interested in options trading, a more sophisticated way of trading stocks. The largest e-brokers traded 32.7 million contracts on all stock option exchanges in December, Piper Sandler said. In January, 39.8 million contracts were traded per day.
Reddit crowd
A new, younger, more social media-savvy cohort has taken up the GameStop mania, a phenomenon that affects stock brokers and traditional investors.
The posts on Reddit’s WallStreetBets page grew last month, as did the accounts on Robinhood, according to social media analytics platforms ListenFirst and SimilarWeb. While conversations on WallStreetBets reached more than 800,000 every day, Robinhood’s daily downloads topped 400,000 per day.
These accounts, and those of E-Trade and TD Ameritrade, were mostly investors between the ages of 18 and 34, according to Bank of America.
“This is important because it is not just private investors who will increasingly be a force in the markets, the young private investors,” the bank said.
While social media and retail use has calmed down this week, both are still elevated, suggesting that some of this higher interest could continue as investors look to the next short squeeze and as new investors enter the market. conflict, ”said the Bank of America report.
Stimulus checks on the go
House speaker Nancy Pelosi expects Democrats to pass on their next coronavirus relief package before the end of February. While the allocation of direct payments is still under discussion, a new round of stimulus controls could mean more liquidity for home traders.
“Based on previous stimulus checking activity, we would expect a fresh increase in retail participation with another stimulus payment to come,” said Bank of America.
Last April, when the US government passed the largest piece of stimulus legislation in our country’s history to allow people to keep paying their bills during the forced economic shutdowns, some consumers put that money in the stock market.
According to software and data aggregation company Envestnet Yodlee, securities trading was one of the most common uses for government incentive controls in nearly every income bracket.
Most analysts attribute the influx of new investors to the attractiveness of the market’s comeback, the absence of sports, working from home and stimulus money. The personal savings rate soared to an all-time high in April 2020, demonstrating a phenomenon of “forced savings” that helped drive retail sales.
“We expect a fresh increase in retail activity with one more round of stimulus, although the level is likely to depend on the type of stimulus (broad or targeted), the market background at the time, as well as possible regulatory changes discussed in the coming period. weeks, ”said Bank of America.
Caution or burned?
As the retail footprint grows, it can be helpful to know what types of stocks individual investors like to buy and sell.
For example, last week it was pot shares. Cannabis companies grew early in the week due to a resurgence of Reddit talks about the cannabis companies. The group came back to Earth on Thursday, but there was nothing small about the swings in stock prices.
While Apple and Tesla are typically the largest stocks bought by retail investors, Credit Suisse points out that the retail sector’s focus for the past 12 months has been on small and mid-cap stocks, according to Apex Clearing.
This boils down to the fact that retailers were some of the first to buy into the small, precipitated stocks during the coronavirus market.
Retail investors gave Wall Street pros a run for their money during last March’s comeback, with the top picks of amateurs outperforming hedge funds, Goldman Sachs noted.
Small investors also got into the heavily shorted small cap stocks such as GameStop and AMC Entertainment. In fact, this focus could make institutions think twice about the stocks they are shorting, avoiding names with a very high percentage of the short-term float.
Retail investors, especially the younger kind, also have a preference for cryptocurrencies, Bank of America told clients.
“With the surge in retail sales since the end of January 2021, we notice that social media talks about stocks have slowed down in recent days as interest in cryptocurrencies continues to increase,” Bank of America told customers.
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– with reporting from CNBC’s Nate Rattner and Michael Bloom.