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Retail investors are still buying stocks: Morning Brief

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Myles Udland
·Anchor
·4 min read
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Wednesday, April 21, 2021

YOLO trades might be fading, but retail is still around. 

The stars of the show in financial markets during the first quarter of 2021 were retail traders. 

Retail fueled meme trades, made Roaring Kitty a star, and flummoxed market professionals who insisted this participation would not last. Even though less than two months ago we highlighted survey data that suggested retail traders weren't going anywhere. 

And according to data from Bank of America Global Research published this week, individuals remain a durable source of buying in this market. And last week, retail was the only bid still out there. 

"Retail clients were the only buyers last week, while institutional and hedge fund clients sold," said Bank of America strategists led by Jill Carey Hall. "Retail clients have been buyers for the eighth straight week, while hedge fund clients sold for the third straight week."

The team at Bank of America notes that cumulative equity flows last week totaled a net $5.2 billion worth of outflows, the largest one-week move out of stocks since November and the fifth-largest on record. In the past, these kinds of exoduses from the market have portended shaky periods for investors. 

"In the prior times weekly flows were this (or more) negative, the subsequent week's returns were -1% on avg/median with negative returns 75% of the time," the firm notes. "Four-week average flows have been trending lower in recent weeks and have now turned negative for the first time since mid-Feb, suggesting a pause to increasingly euphoric sentiment."

Stocks on Tuesday fell for the second-straight day this week after closing at record highs last week. Action that is certainly in-line with what Bank of America's work suggests. 

But data from strategists on the Street does show that retail's participation in this market is not what it once was. The strategy team over at Deutsche Bank led by Binky Chadha published a report late last week showed that single-stock call options — a core part of the YOLO trade powered by retail — has been declining in recent weeks. 

Deutsche Bank's work does, however, capture the same relative strength in retail flows last week as was picked up by Bank of America. But the firm writes that "as the economy has been reopening and the stimulus payments mostly behind us, we have seen signs of this group reducing its market activity."

"Most recently, retail activity looks to have ticked up modestly again, though it remains well below its January peak." the firm adds. "We expect retail activity to continue to fade with reopening and especially a return to work."

Single-stock options activity has declined, a sign to analysts at Deutsche Bank that retail enthusiasm in the market has waned in recent weeks. The bank expects this trend to continue as the economy re-opens. (Source: Deutsche Bank)
Single-stock options activity has declined, a sign to analysts at Deutsche Bank that retail enthusiasm in the market has waned in recent weeks. The bank expects this trend to continue as the economy re-opens. (Source: Deutsche Bank)

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  •  7:00 a.m. ET: MBA Mortgage Applications, week ended April 16 (-3.7% during prior week)

Earnings

Pre-market

  • 6:00 a.m. ET: Anthem (ANTM) is expected to report adjusted earnings of $6.52 per share on revenue of $33.04 billion 

  • 7:00 a.m. ET: Nasdaq (NDAQ) is expected to report adjusted earnings of $1.75 per share on revenue of $812.13 million 

  • 6:45 a.m. ET: Halliburton (HAL) is expected to report adjusted earnings of 17 cents per share on revenue of $3.35 billion 

  • 7:30 a.m. ET: Verizon Communications (VZ) is expected to report adjusted earnings of $1.29 per share on revenue of $32.45 billion 

Post-market

  • 4:05 p.m. ET: Whirlpool (WHR) is expected to report adjusted earnings of $5.29 per share on revenue of $4.85 billion 

  • 4:10 p.m. ET: Chipotle (CMG) is expected to report adjusted earnings of $4.91 per share on revenue of $1.75 billion 

  • 4:10 p.m. ET: Spirit Airlines (SAVE) is expected to report an adjusted loss of $2.67 per share on revenue of $459.67 million 

  • 4:10 p.m. ET: Las Vegas Sands (LVS) is expected to report an adjusted loss of 26 cents per share on revenue of $1.37 billion 

Top News

Netflix adds 3.98 million new subscribers, sharply missing expectations [Yahoo Finance]

Dogecoin price crashes as 'Dogeday' hype fades [Yahoo Finance UK]

Derek Chauvin verdict had Minneapolis businesses prepared to ‘hit the panic button’ [Yahoo Finance]

Discord ends sale talks with Microsoft [Reuters]

Yahoo Finance on Apple April 20 special virtual event

Apple debuts iPad Pro with high-powered M1 chip, high-end display

Apple debuts AirTag for easily tracking your lost items like keys

Apple debuts incredibly thin iMac with M1 chip

Apple debuts Apple TV 4K with improved remote, color balancing feature

Yahoo Finance Highlights

Where one of Wall Street's top marijuana analysts sees 80% upside

Rep. Blumenauer 'confident' Biden will 'stay out of the way' on marijuana legalization

P&G is raising prices in September — here's why

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    GameStop shares were on a tear early Monday, as Kieth "RoaringKitty" Gill announced he was doubling his stake in the firm and CEO George Sherman said he is stepping down.

  • Plumber Buying Doge Shows Retail Investors’ Power in Crypto

    (Bloomberg) -- A rocky weekend for the legions that poured into all things crypto after Coinbase Global Inc.’s direct listing did little to undermine its grip on retail traders.Dogecoin rallied another 20% or so Monday, even after most of the biggest tokens, including Bitcoin slumped further. To Mike McGlone, a Bloomberg Intelligence commodity strategist, the recent run-up in the joke token is exemplary of retail’s involvement in crypto markets. His plumber told him recently that he’d bought in.To McGlone, it’s a result of the “perfect storm” of pandemic lock-ups, lots of cash in the system, and investors’ ability to speculate around the clock. “Markets will never change -- this one is just 24/7 and the easiest to access in history,” he said. It’s “a prime example of just plain gambling for fun -- unless participants lose too much money, notably because they took too much risk at the casino.”While Coinbase’s market debut was undeniably a watershed moment for crypto’s move into the mainstream, the weekend rout delivered a harsh refresher on one of the market’s basic tenets: violent price swings are common.A false report from an anonymous Twitter account that the U.S. Treasury was cracking down on crypto money laundering was enough to help send Bitcoin plunging by as much as 15% on Sunday, days after clocking in at a record of $64,870. While low weekend liquidity likely exacerbated the nose dive, the world’s largest cryptocurrency dropped another 3.5% on Monday.That an erroneous tweet can torpedo prices is a reminder that even for all the talk of Wall Street’s growing embrace of crypto, individual investors have a lot of heft to throw around. That dynamic is especially prevalent on weekends, when traditional trading desks go dark while Bitcoin and other cryptocurrencies continue to change hands. Even as Coinbase’s direct listing marks an important milestone for crypto, for institutions and traders venturing into crypto, learning to live with that volatility is a key first step.“It’s more an introduction to all the people who had gotten into Bitcoin or crypto over the last week because of Coinbase that crypto markets can be very volatile,” Philip Gradwell, chief economist at crypto data tracker Chainalysis, said by phone. “This is in some sense, nothing new if you’ve been in the industry for a few years.”Even by crypto standards, sentiment was looking stretched at the end of last week. Bitcoin soared in the lead up to Coinbase’s much-anticipated listing, bringing year-to-date gains to over 118% at one point. That enthusiasm spilled into so-called altcoins such as Dogecoin, which has soared more than 13,000% over the past year.The moves can be jarring. Roughly $9.3 billion in so-called long Bitcoin future positions were liquidated on Saturday, followed by another $700 million on Sunday, according to data from Bybt.com.Such a pullback in Bitcoin was “inevitable” given the degree of froth, Galaxy Digital founder Michael Novogratz tweeted over the weekend, adding that “we will be fine in the medium term” as institutions enter the space.Shifting the power dynamic in favor of the institutions will be the “Holy Grail” for Coinbase, BI analyst Julie Chariell said last week, given that corporations are less likely to dump their holdings as quickly as retail traders. Though individual investors made up just 36% of the exchange’s volume during the quarter ending Dec. 31, more than 90% of Coinbase’s revenue came from retail trades.Whether the cryptocurrency exchange is successful remains to be seen. But even should Bitcoin carve out a place in portfolios and on corporate balance sheets beyond the likes of MicroStrategy Inc. and Tesla Inc., the weekend will likely still belong to the individual investor.“The retail investor still dominates the crypto market,” Steven McClurg, CIO at Valkyrie Investments, said in a phone interview. “When you see action like that over the weekend, that’s just when all the institutional traders are asleep or not working.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.