Bloomberg’s Sarah Ponczek reports on the surge of retail investing in stock markets. She writes:
Everyone knows retail investors dived back into the market as stocks rebounded. Now, evidence is starting to build that their buying has become a key driver of the beaten-down shares that are dominating the rally.
Companies that have been soaring are in many cases the same firms that have seen skyrocketing interest at brokerages popular with individual investors. Turnover is surging: average daily volume for these stocks has occasionally been 30 times what it was in 2019.
Maybe small-time investors are just having a great run of stock-picking, but market watchers are being forced to ask to what degree retail interest has become a self-fulfilling prophesy in many parts of the market. Rallies in companies they’re drawn to are a big part of the broadening gains that on Monday erased the S&P 500’s loss for 2020.
“Some of these names where it’s just pure momentum, they have an outsize impact on the trade,” said John Ham, associate adviser at New England Investment and Retirement Group. “You see much more of an impact on airlines and cruise ships and low-dollar amount names.”
Fascinated with industries that fell most in the coronavirus crash — airlines, cruise operators, auto sellers — and egged on by Twitter impresarios and in chat rooms, tiny day traders are betting big on the recovery. And their trading has been at the very least prescient. Lured by zero trading fees, a historic selloff and probably boredom while stuck at home, the group often viewed as “dumb money” opened record new trading accounts in the first quarter. While Wall Street icons denounced the rally, retail traders kept on buying — a decision that’s paid off as the S&P 500 jumped more than 40%.
Their favorites list includes Norwegian Cruise Line Holdings Ltd., American Airlines Group Inc., United Airlines Holdings Inc., and Carnival Corp. The 10 Russell 3000 stocks that have seen their popularity rise the most over the last month on the Robinhood investing app, according to website Robintrack, are up an average of 93% since early May — nine times the S&P 500’s return.
Conversely, six of the S&P 500’s 10 best performing stocks over the last month appear on a list of companies that have seen the biggest pickup in interest among users of Robinhood. On the surface of one particularly baffling phenomenon — firms whose shares are surging despite having filed for bankruptcy — the fingerprints of retail investors are everywhere.
Read more here.
