Markets are losing retail traders, which is bad for stock prices

What’s happening: In the spring of 2020, the world shut down due to Covid-19 and the market went down. But Americans, bored and glued to their couches, turned to stocks as a source of entertainment. Using the stimulus money that filled their pockets and taking advantage of new technologies that made trading easy and cheap, they entered the markets. This new money led to a rapid rebound in stocks, as well as a boom in meme stocks.

In the first quarter of 2021, during the retail boom, Schwab reported an average of 8.4 million trades per day. Morgan Stanley (THE MRS) He reported 1.6 million.

Order flow data from Robinhood and Interactive Brokers also show a sharp decline in activity over the past three months. In February 2021, Interactive Brokers recorded an average of 3.7 million retail trades per day. By September 2022, that number had dropped to 1.9 million, according to data compiled by S&P Global Indices.

Recent search trends on Google have also reduced interest in the stock market. Searches related to the market peaked in March 2020 and continued into 2021. But searches for terms related to the Dow Jones Industrial Average, Apple (AAPL) and Tesla (TSLA) have dropped in recent days. Those declines are a good proxy for actual market share, DataTrek Research said in a report.

Overall, individual investors feel bearish. The Investor Movement Index (IMX), created by TD Ameritrade to gauge retail investor sentiment, fell 7.26% in September. In 2021 IMX was above 8.0, today it is only at 4.5%.

Robinhood (HAT), an app-based stock trading platform, is cutting costs in response to a declining user base. The company announced in August that it would cut 23% of its full-time workforce, the second cut this year.
“Last year, we performed many of our operational functions under the assumption that the retail engagement we were seeing with the equity and crypto markets during the Covid era would continue into 2022,” Robinhood CEO Vlad Tenev wrote in a subsequent message to employees. advertisement “In this new environment, we are working with more staff than necessary.”

Shares of Charles Schwab are down about 20% this year. It’s Robinhood Down 47%, and it’s Morgan Stanley down 24%

Bottom line: The loss of retail investors is worrisome for many reasons. One is that the market may experience a longer and deeper decline. It could also mean that the era of meme stock fan favorites is over AMC (AMC), GameStop (GME) and Bed Bath & Beyond (BBBY).

But don’t panic yet. “While the activity is certainly a far cry from the meme stock rally, I’d say it’s holding up pretty well,” said Thomas Mason, senior analyst at S&P Global Market Intelligence. “Some are certainly pulling out of the market and buying bonds, but it seems that retail investors are mostly taking a wait-and-see approach to equities, holding on to Big Tech stocks and turning to more stable dividend-paying sectors like energy.”

Goodbye Liz Truss, we hardly knew you

Kim Kardashian can officially say her ill-fated 72-day marriage to Kris Humphries lasted longer than British Prime Minister Liz Truss’ tenure.

A mutiny among members of Truss’s Conservative Party sealed the fate of the shortest-serving prime minister in British history on Thursday, colleague Julia Horowitz reported.
But the failure of his elusive leadership was actually written by the financial markets. Investors immediately protested its disastrous “growth plan” when it was unveiled in September.
UK government bond yields rose at the fastest rate on record, sending borrowing costs soaring, upsetting the country’s mortgage market and forcing the Bank of England to make three successive interventions to rescue pension funds.

Need more proof? Markets usually hate uncertainty. But on Thursday, they shrugged. UK bonds held up. The pound rose 0.4% to $1,125.

“While the resignation of Liz Truss as Prime Minister leaves the UK without a leader, facing major economic, fiscal and financial market challenges, markets appear to be easing,” said Paul Dales, chief UK economist at Capital Economics.

Another Conservative leadership election will be held in a week, and the next Prime Minister will be announced on Friday, October 28. The UK will now have its fifth prime minister since the 2016 divisive Brexit referendum.

US home sales fall for 8th straight month

US home sales fell for an eighth straight month in September as rising mortgage rates and high prices pushed buyers out of the market, colleague Anna Bahney reported.

That continues a slowing trend that began in February and marks the longest decline in home sales since October 2007 during the subprime mortgage meltdown.

Sales of existing homes — including single-family homes, townhomes, condominiums and co-ops — fell 23.8 percent in September from a year ago and 1.5 percent from August, according to the National Association of Realtors.

September sales were at their weakest levels since May 2020, which was an anomaly as this was in the early days of the pandemic lockdown. That aside, last month’s sales were the weakest since September 2012.

Segmented market: The slowdown manifests itself differently in markets across the country.

In the West, sales have fallen the most, with a 31.3% drop since last year. Meanwhile, home sales fell 18.7% from a year ago in the Northeast, 19.7% in the Midwest and 23.8% in the South.

“While we often talk about a national housing market, this is the sum of the trends in thousands of local real estate markets across the country,” said Danielle Hale, Chief Economist for Realtor.com. “With the national market at an inflection point, there has been a wider range of local market conditions.”

the next

Verizon, American Express report third quarter earnings before the bell.

Next week Next week:

▸ Conference Board Consumer Confidence, September new home sales and pending home sales, US GDP, September Personal Consumption Expenditure (PCE) price index,

▸ Third quarter earnings from Microsoft, Alphabet, Coca-Cola, Meta, Apple, Amazon, McDonald’s, Exxon Mobil and Chevron.