It is an epic fall from 2021, when at-home traders shot to fame after banding together on WallStreetBets forums to try to squeeze professional investors out of short positions and otherwise overthrow the Wall Street order. Retail investors accounted for roughly 24% of the total stock trading at one point. Their influence made Reddit blogs and Stocktwits posts must-read material for anyone gathering intel on markets.
In 2022, when about $9 trillion has been erased from the value of U.S. equities, the day-trader army has held relatively firm, at least in terms of positioning, which contrasts with professional money managers who have been retreating. Hedge funds, for instance, have been cutting risk for months, sending their equity exposure to a two-year low, shown the data compiled by Morgan Stanly’s prime broker unit.
For investors looking for signs of a market bottom, retail behavior is something to watch, according to Morgan Stanley analysts including Christopher Metli.
There are signs that the day-trader crowd is souring on the market. In April, retail investors snapped up $14 billion in stocks, the second-slowest uptake in any month since late 2020, Morgan Stanley data show. In the options market, where they used to rush to bullish calls for quick profits, activity is now tilting toward bearish puts.
At Bank of America Corp.’s private client unit, where the firm overseas $3 trillion, wealthy individuals exited stocks over the past four weeks at the fastest rate since November.
With personal savings as a percentage of disposable income having fallen back to pre-Covid levels, Vanda Research analysts including Giacomo Pierantoni are doubtful that individual investors will have much more financial and emotional capital to continue buying the dip aggressively.
People have been foretelling the death of 2020-vintage retail investors since the moment they surfaced — past reports of their demise were exaggerated. Armed with zero-commission trading accounts, individual investors have managed to will their favorite stocks back from the brink multiple times, and may be able to do so again.
Amateur investors who jumped in when the lockdown began have now given back all of their once-prodigious gains. The calculation is based on trades placed by new entrants since the start of 2020 and uses exchange and public price-feed data to tally overall profits and losses.
Famous names like AMC Entertainment Inc., which is down 78% since June 2021. It has lost 49% this year. Peloton Interactive Inc. is off 90% from its record. From the start of 2020 to last November, a basket of retail stock favored by retail trades more than doubled. This year, that basket has plunged 32%, more than twice the S&P 500’s decline.
A lot of these guys started trading right around Covid so their only investing experience was the wacked-out, Fed-fueled market. That all changed with the Fed pivot in November, but they didn’t realize that because they have never seen a market that wasn’t supported by the Fed. The results have been horrific.