Retail investor ranks in the stock market continue to surge

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Retail investors continue to jump into the market in droves even after the dust of the GameStop trading saga clears.

According to JMP Securities, which use SimilarWeb app download data, the major online brokers continue to see increased app downloads, well above last year’s levels.

Millennial favorite stock trading app Robinhood saw over 2.1 million app downloads in February, up 55% year over year. While this was up from the January banner month when Robinhood had more than 3.6 million downloads, the data shows that the rookie investors are still coming to the market.

“However, app download activity, which started with tremendous momentum in 2021 and rose sharply in the days of the Reddit / Social Media Short Squeezes, still remained well above average despite the changing news cycle and attention from traders,” JMP said -Analyst Devin Ryan told client.

Investors were caught in a major trading saga with a number of sharply shortened stocks, including GameStop, which shot up unexpectedly in late January amid a retail boom.

At the height of GameStop’s rise, Robinhood and other brokers restricted trading in certain securities because clearinghouses had increased capital requirements. However, the broker’s reputation appears to be intact. Fidelity, E-Trade, TD Ameritrade, Coinbase and Webull saw increased app downloads in February.

GameStop is still seeing a crazy trade in March. The brick and mortar retailer gained 40% on Wednesday for no apparent reason and went negative a few minutes later. While frantic trading is unlikely to recur in January, volatility could continue as retail investors increase their overall hold on the stock market.

“We expect new app downloads and account activity to remain above pre-pandemic levels and the base for trading activity to have steadily increased after the record number of new customers in the industry,” added Ryan.

Retail has accelerated since the industry-wide decision to cut commissions in fall 2019. Since then, pandemic-triggered market volatility has sometimes brought new investors into the world of stocks for the first time. Work-from-home, stimulus checks, and higher personal savings, as well as social media platforms like Reddit, have only accelerated the retail boom.

In addition, web traffic with the major brokers continues to rise and set new records, indicating that retail investors are trading frequently.

“We continue to see a tremendous opportunity for companies to take advantage of this increased commitment to earn more wallet shares from their customers over time,” added Ryan.

How powerful are retail investors today?

Institutional investors may need to pay more attention to the little guy given their ever-growing presence in the marketplace.

Using big data, the Goldman Sachs derivatives team found that the dollar value of small lot trades – a proxy for retail trades – rose 85% over the past year, making small traders a much stronger one Market power gives company said.

“Retailers are becoming an increasingly large part of total volume,” said Randy Frederick, vice president of commerce and derivatives at Charles Schwab, in a webinar on Wednesday.

Goldman’s chief US equity strategist David Kostin said the abundance of budget funds should fuel the retail boom. The company estimates US households have accumulated about $ 1.5 trillion in “excess” savings, which should rise to about $ 2.4 trillion by mid-2021.

“With short-term interest rates expected to remain close to zero for a few more years, retail investors will likely continue to redistribute funds to asset markets such as stocks with higher potential returns,” Kostin said in a statement to clients.

In fact, Kostin predicts that households will be the largest source of equity demand in 2021, with economic growth historically being the main driver of retail participation in markets. Goldman raised its forecast for net household demand for capital to $ 350 billion from $ 100 billion on Sunday.

The increase “reflects faster economic growth and higher interest rates than previously thought, additional stimulus payments to individuals and increased retail activity in early 2021,” Kostin told customers.

The $ 1.9 trillion fiscal stimulus package is expected to be passed this week and is said to include $ 1,400 of stimulus checks that could be used for securities trading.

Private investors are doing it right

Retail activity has also become a valuable signal for stocks to differentiate.

According to Goldman’s derivatives team, stocks that have increased trading activity in small stocks and options outperformed in the next 5 to 10 days.

Schwabs Frederick reiterated that statement on Wednesday, saying retailers have had great success.

“On the whole, many of them did very well,” said Friedrich. “Buying dips has been a pretty effective strategy.”

– with reports from Michael Bloom and Nate Rattner of CNBC.

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