Jim Cramer breaks down the GameStop short squeeze
GameStop mania may be over, but retail investors remain
The GameStop bubble has come and gone, but rookie investors who communicate with emojis on Reddit may stay in business with big ramifications for brokerage firms as well as traditional investors who need to pay closer attention to where this fast-moving crowd is. using smartphone apps to move on.
«We believe some of the new retailing will continue», – wrote the Bank of America analyst group in its report to clients.
The Bank of America team found that the unprecedented rise in downloads of brokerage apps during the GameStop hype this month continues at a rapid pace, even though GameStop trading itself is now forgotten. Credit Suisse data show that the share of retail trade in total market activity has accelerated in recent months and has now doubled since the beginning of last year..
In addition, with the potential for a new round of incentive reviews this month, there could be another tidal wave of cash ahead from these new investors..
Retail trading activity accelerated after a decision was made in the fall of 2019 to cut industry commissions. Since then, market volatility caused by the pandemic has brought new investors into the stock world, some for the first time. Working from home and higher personal savings, as well as social media like Reddit, have only accelerated the retail boom..
App market analytics company SensorTower had 3.7 million downloads in January. And this is in view of the unpopular decision taken by the stock trading app favored by millennials – Robinhood imposed trading restrictions on several stocks during the GameStop rally. After GameStop drama in February, downloads remain steady at 1.8 million monthly.
Traditional brokerage firms like Charles Schwab and E-Trade have seen an influx of new clients as well as new market players like Webull. Download rates significantly surpass retail participation during the Covid-19 pandemic.
Stock retail volume doubled from last year.
According to Credit Suisse, since the beginning of 2020, the share of retail in total activity has almost doubled – from 15% to 18% to over 30%. The graph shows a surge in activity over the past months.
The Wall Street company estimates the total share of retailers and wholesalers in U.S. trading volume since 2017, using TRF, or trade reporting volumes, as a metric for retail investment. It includes retail deals, which are directed to market makers, as well as dark pools, which are private forums for trading. The vast majority of retail transactions (90%) become known to the company’s analysts.
Trade as a whole has doubled since last year. About 15 billion shares are traded daily, up from 7 billion last year, according to Piper Sandler..
«Twice as much as retail», – Piper Sandler analyst told CNBC earlier this week Richard Repetto.
Private investors were particularly interested in options trading, a more complex way of trading stocks. According to Piper Sandler, in December, the largest electronic brokers sold 32.7 million contracts on all stock options exchanges. A record 39.8 million contracts a day sold in January.
A new, younger and more social media cohort has come to grips with GameStop mania, a phenomenon that affects the interests of brokerage firms and traditional investors..
The number of posts on the WallStreetBets Reddit page increased last month, as did the number of accounts on Robinhood, according to social media analytics platforms ListenFirst and SimilarWeb. As the number of discussions on WallStreetBets grew above 800K per day, Robinhood’s daily downloads exceeded 400K per day..
According to Bank of America, these accounts, as well as the E-Trade and TD Ameritrade accounts, were created primarily by investors between the ages of 18 and 34..
«This is important because not only retail investors, but also young retail investors, can play an increasing role in the markets», – stated in the bank’s note.
While social media usage and retail have declined this week, both are still high, which «could mean that some of this heightened interest may persist as investors anticipate the next short-term squeeze and as new investors get caught up in the fray», – stated in its report to Bank of America.
Speaker of the House of Representatives Nancy Pelosi expects Democrats to hand over their next coronavirus aid package by the end of February. While direct payments are still under discussion, another round of incentive checks could mean increased liquidity for home traders..
«Building on previous activity regarding stimulus checks, we expect another spike in retail engagement with upcoming stimulus payments», – believes Bank of America.
Last April, when the US government passed the largest stimulus bill in the country’s history, allowing people to keep paying their bills during a forced economic shutdown, some consumers are investing in the stock market..
According to software and data aggregation company Envestnet Yodlee, securities trading was one of the most common uses of government incentive checks for nearly all income categories..
Most analysts attribute the influx of new investors to the attractiveness of a return to the market, lack of access to sports, tendencies to work remotely and incentive payments. Personal savings skyrocketed to an all-time high in April 2020, showing the phenomenon «forced savings», which helped boost retail performance.
«We expect another spike in retail activity due to another round of stimulus, although the level is likely to depend on the type of stimulus (broad or targeted), market conditions at the time, and any potential regulatory changes discussed in the near future. weeks», – Bank of America analysts believe.
As retail volume grows, it would be helpful to know what types of stocks individual investors like to buy and sell..
Cannabis companies surged early last week amid spike in Reddit talk about marijuana growing companies.
While Apple and Tesla tend to be the largest stocks bought by retail investors, according to Apex Clearing, Credit Suisse notes that retail investor attention has been focused on small and mid-cap stocks in the past 12 months..
This adds up to the fact that retail traders were among the first to buy small stocks that fell in value during the market depression due to the coronavirus..
Goldman Sachs notes that retail investors gave Wall Street pros the opportunity to make their money during their return to the market last March, with amateur favorites outperforming hedge fund professionals..
Small investors have also invested in heavily appreciated small-cap stocks such as GameStop and AMC Entertainment. This focus may even cause institutions to think twice about the short stocks they are selling, avoiding names that have a very high percentage of short interests..
Bank of America informed clients that private investors, especially young ones, also prefer cryptocurrencies.
«With the rise in retail since late January 2021, we note that social media talk of promotions has slowed down over the past few days, while interest in cryptocurrency continues to rise.», – reported by Bank of America.