NEW YORK (Reuters) – Retail traders have shifted from “meme stocks” to large-cap stocks and exchange-traded funds, and although their activity has slowed from its January high, the skyrocketing pace of new retail accounts mean that non-professionals are likely to remain a market force.
Retail levels soared early in the year, helped by the frenzy of stock buying like GameStop Corp. But that was followed by a pullback, the data showed, despite expectations that investors would use stimulus checks to trade.
“We expected this huge influx of money to come from retail after the stimulus checks came in in March. That didn’t happen, ”said Eric Liu, co-founder of Vanda Research, which tracks retail activity.
Liu said small investors who sold favorites like GameStop in February or March were likely burned, as most of the names that retail had piled up in January fell to between 20% and 30%.
This may have caused some investors to hold money in the markets and push others to ETFs, he said. Buying ETFs on single stocks is a more conservative transaction because it spreads the risk.
JPMorgan analysts said in a note Wednesday that retail activity around small-cap stocks is near its lowest year-to-date, but has recovered over the past two years. recent weeks around large-cap stocks like Apple and Boeing, as well as ETFs like Invesco QQQ.
While overall retail volumes have moderated, they remain well above almost every other period, and other measures of retail engagement, such as margin balance, are also emerging. robust, analysts at Jefferies said in a note.
At Charles Schwab Corp, activity increased slightly in the week of April 12, to an average of just over 6 million daily transactions, after falling for six consecutive weeks by about 9.4 million during the week of February 22. here show.
“As we entered March and now well into April, we have seen moderate customer engagement to some extent,” Schwab CEO Walt Bettinger said Thursday. “It’s still high, but it’s showing up at levels that might be more sustainable in the long run.”
(GRAPH: Average daily transactions of Charles Schwab Corp customers -)
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However, the underlying strength of online brokerage account openings means analysts are not yet counting retail investors. Individuals have entered the market in droves since October 2019, when large brokers like Schwab and Fidelity gave up their trading commissions, following startups like Robinhood and Social Finance Inc (SoFi).
Mike Bijesse, a 34-year-old New Yorker with a background in fintech, said he started using his Robinhood app daily at the start of the pandemic.
“I’m definitely a little addicted. There’s a sort of ‘first thing in the morning, take a look’ and make impulse trades, ”he said.
The influx of new investors increased during COVID-19 lockdowns and their frantic trading of small cap stocks like GameStop and AMC Entertainment helped push market volumes to record highs, reaching a high of 24.48 billion shares traded on Jan. 27, according to data and analysts at Refinitiv. .
Bijesse said that on that day he sold AMC shares he bought in December for a 5X return. Most recently, he bought a quarter of the shares of mega-cap Coinbase after it debuted in the market last week.
At Schwab, clients opened 3.2 million new accounts in the first quarter – more than what was opened in 2020, not counting accounts acquired through mergers and acquisitions, the company said.
At brokerage TradeZero America, new accounts are up 300% to 400% this year compared to last year, said co-founder Dan Pipitone.
“While the volumes have definitely gone down, the rate at which people are onboarding and opening accounts, we really haven’t seen a deep decrease in that,” he said.
With transaction costs so low for small investors, almost anyone can have a brokerage account, even if it’s just for entertainment, said Ivo Welch, professor of finance at the Anderson Graduate School of Management. UCLA.
“There are few other thrills and cheap games of chance where the odds are so good. Certainly much better than the lotteries or Las Vegas, ”he said.
Reporting by John McCrank; additional reports from Sinead Carew; edited by Megan Davies and Steve Orlofsky