At various intervals over Q1, analysts and commentators suggested the pandemic-era “retail mania” evident in, for example, surging daily average trades at online brokers and small-lot options activity, was likely to abate.
In the 12 months following the initial COVID lockdowns in the US, retail investors “gone wild” were credited with driving all manner of dubious dynamics, including nonsensical rallies in shares of bankrupt companies, a melt-up in mega-cap tech that ultimately buckled under its own weight in September and, of course, the “meme” stock fiasco, that crescendoed in the lionization of “Roaring Kitty” and the figurative crucifixion of Robinhood.
Although stimulus checks were the go-to explanation for increased retail investor interest, plenty of other factors were at play including the substitution of stock trading for sports gambling and the simple fact that people were stuck at home, glued to their keyboards and monitors. The gamification of trading (e.g., Robinhood) and the antics of folks like Dave Portnoy (who, in my opinion, suffers from an extremely acute case of delusions of grandeur) exacerbated the situation.
In the weeks just prior to the disbursement of the latest stimulus checks, many insisted the money would be plowed into stocks. And yet, as the checks landed in bank accounts, there was a palpable sense of disappointment when equities didn’t stage another massive leg higher.
In “What Happened To The ‘Stimmy’ Surge?,” I jokingly lamented the apparent lack of follow-through from retail investors, who many assumed would immediately transfer at least a portion of any new stimulus funds received to their online brokerage accounts. Then, in “Jagerbombs,” I wrote that some of the “disinterest” from the retail crowd may have been down to Spring Break and the gradual reopening of the services sector.
That was a euphemistic way of saying that to the extent the surge in retail activity was attributable to young investors and traders stuck at home with nothing to do, now it’s time for Jägerbombs again.
Fast forward two months and, at least on some familiar indicators, retail investor interest continues to wane. “Retail investors’ euphoria seems to be cooling-off, with AAII Bull-Bear sentiment index down from the fresh highs and closer to neutral now,” Barclays’ Emmanuel Cau wrote, in a Wednesday note, adding that “equity buying from retail investors on popular platforms like Charles Schwab remain elevated and higher than for bonds, but the gap between the two has narrowed a bit this month.”
Further, Cau noted that small-lot call option volume “continues[s] to slow [while] bigger size contracts, likely more used by institutional investors, are picking up as a share of total.
What accounts for the waning interest? Probably not the absence of additional stimulus.
“There seems to be a link between the reopening economy and less new money coming into equities from retail investors,” Barclays went on to write, noting that “most mobility indicators in the US and the UK have normalized, individuals are back to work, have less spare time to look at the market, and also have more discretionary spending opportunities.”
So, they’re back serving Jägerbombs and when they’re not serving them, they’re buying them. And, of course, sports are back, which means sports gambling is too. No need to substitute GameStop calls for the over-under anymore.
If you’re wondering whether Barclays offered any hard evidence of this, the answer is yes. The bank cited a discernible downtrend in card spending on broker/dealers and juxtaposed that with mobility indicators, which are rising in the UK. “In our opinion, this shows some evidence reopening may be diverting retail attention away from markets,” the bank said.
Ironically, I wrote this on a day when America’s meme stocks were back in the news. Call it a last-gasp before WallStreetBets fades (back) into relative obscurity. But hey, it wasn’t all for naught. There’s a case to be made that Reddit may have saved some companies from financial oblivion. Whether they deserved the life raft is another matter.