With the recent volatility in financial markets, some people have started to wonder if they should follow the traditional path and trade stocks or ride out volatility with an exchange traded fund (ETF). ETFs offer some benefits that probably make them a better option for those trying to manage risk.
The “gme” is a company that has been around for over 30 years. It is the largest retailer of video games, electronics, and consumer goods in North America. The company has seen its share price decrease by nearly 40% since the beginning of 2018. Retail investors ride out volatile markets with ETFs like the GEM.
During the Covid-19 epidemic, a record number of individual investors rushed the markets. They’re still hanging around after almost two years, albeit their tactics has altered.
The stock market in the United States is recovering from one of its most choppy periods in recent memory, a quick drop that began in September and saw the S&P 500 index plummeting 5.2 percent, its worst drop since October 2020.
Individual investors were unfazed, defying some experts’ predictions that they would pull out once U.S. equities stopped rising. Even while individuals went to work, traveled, and spent money elsewhere, so-called retail investors opened brokerage accounts in the third quarter, bought the drop, and traded at a rate not far off the year’s highs.
However, what changed in the previous quarter was what they were trading. Retail investors shied away from meme stocks, opting instead for more conservative exchange-traded funds. They reduced their bullish options trading. Sentiment polls have also shown that the group has a lower level of confidence in the stock market: According to an E*Trade poll conducted in October, 58 percent of individual investors anticipate the stock market will conclude the quarter stronger than it did the previous quarter, compared to 72 percent the previous quarter.
“The volume has definitely slowed down when you’re looking at the more speculative sections of the market,” said Jason Goepfert, head of Sundial Capital Research. “I believe we’re seeing more investors and less hyperactive day-traders and strike-it-rich-next-week activities.”
Individual investors’ mood may have been harmed by a lack of movement in meme stocks like AMC Entertainment. In Burbank, California, there is an AMC cinema.
Getty Images/Valerie Macon/Agence France-Presse
Analysts and investors believe there are various causes for the move. Long periods of volatility in September frightened several investors. A lack of progress in tried-and-true favorites like GameStop Corp. and AMC Entertainment Holdings Inc. probably hurt sentiment as well. Meanwhile, the rise of cryptocurrency and non-fungible tokens (NFTs) trading has certainly shifted hazardous behavior to other asset classes.
Here are five graphs that show what individual investors have been doing recently.
New accounts are constantly being opened by individual investors.
Individual investors continue to create new accounts, according to data from online brokerages. According to Charles Schwab Corp., approximately 1.2 million new brokerage accounts were established in the third quarter, nearly twice the nearly 600,000 that were opened in the same time previous year. During the time, though, new-account growth fell short of the levels witnessed during the retail-trading boom in the first and second quarters, when Schwab added 3.1 million and 1.6 million new accounts, respectively.
Despite this, the overall number of active brokerage accounts increased by 1.3 percent quarter over quarter to roughly 32.7 million, according to the business.
During this time, Schwab wasn’t the only brokerage that saw a surge in new accounts. Individual investor accounts at competitor Interactive Brokers Group Inc. increased 10% to 982,000 from the previous quarter, according to the firm.
“In comparison to previous eras in history, retail participation is still pretty strong,” said Devin Ryan, director of financial technology research at JMP Securities. “We’re not maintaining the first-half record levels, which I don’t believe many people felt was typical.” Retail investors remain tremendously active, and these major platforms are reaping the benefits of that additional client.”
Their trade volume is still substantial by historical standards.
Individual investor trading volume has fallen from record highs early this year, but experts say they’ve been astonished by how resilient activity has been. According to data from Vanda Research’s VandaTrack, which measures individual investors’ trading activity, the group bought $24.4 billion worth of U.S. equities and ETFs in September, a month marked by increased market volatility. This is just a smidgeon behind the monthly high of $27.9 billion set in June.
Schwab’s third-quarter statistics showed a similar downward trend. According to the corporation, the number of daily average transactions among clients fell 8% over the previous quarter.
Rich Repetto, a senior research analyst at Piper Sandler, stated, “My interpretation is that this was a really outstanding performance in what is generally a poor summer seasonal quarter.” “We expected this to be the recovery quarter—the summer quarter, when people would be able to take more holidays and travel.” To us, being down…8% was a good engagement performance.”
They’ve lately backed away from risky stocks, but that may be changing.
Individual investors flocked to exchange-traded funds and several large technology firms during the heightened period of volatility that began in September, statistics from VandaTrack reveal, pouring into such transactions notably on days when the market dropped. They avoided long-held favorites like meme stocks, electric-vehicle companies, and other “green” firms, on the other hand.
According to a VandaTrack basket that analyzes inflows into 30 ETFs, including the famous SPDR S&P 500 ETF Trust, or SPY, individual investors acquired a total of $5.6 billion in ETFs on a net basis in September. This was the greatest monthly sum so far this year, compared to a monthly average of $3.9 billion in net inflows in 2021 through September of this year.
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Meanwhile, a VandaTrack-compiled basket of meme stocks had just $630.6 million in total net inflows in September, compared to a monthly average of roughly $1.2 billion in 2021.
However, there have been some recent outliers to this pattern, suggesting that it may be reversing. Retail investors have come together in recent days to boost shares of Digital World Acquisition Corp., a special-purpose acquisition firm tied to former President Donald Trump. Individual companies, including as fuel-cell manufacturer Plug Power Inc., have become favorites within the group, according to VandaTrack data.
“I’m curious to see whether participation picks up now that we’ve made it through September, which is a difficult month,” said Viraj Patel, global macro strategist at Vanda Research. “These retail investors still have some dry powder to deploy, and the likelihood is that they are waiting for a better market environment.”
They reduced their bullish option activity.
The stock market’s volatility in September didn’t merely result in a drop in speculative purchasing. According to statistics from Deutsche Bank Global Asset Allocation, small options traders, defined as those purchasing 10 or less contracts at a time and viewed as a proxy for retail traders, have also backed away from bullish options strategies. When an individual investor expects an asset to increase, he or she will purchase bullish call options.
Mr. Goepfert of Sundial reviewed options data and found that in late September, small traders spent just 43% of their options volume on bullish contracts, the lowest percentage since October 2020, indicating that they were less confident about the market.
Mr. Goepfert said Monday that the percentage of optimistic bets has returned in recent weeks, with small traders purchasing 49 percent of their volume in call options last week, albeit below earlier this year’s highs.
They’re buying speculative cryptocurrencies in droves.
Individual investors re-entered the cryptocurrency market this summer, as the digital asset recovered from its mid-year plunge. With little opportunities for large returns in mainstream stocks, ordinary traders aided in the rise of multiple altcoins (alternatives to bitcoin). At the time, Cardano’s ada coin was one of the biggest winners.
Many private investors have recently been interested in Shiba Inu, a relative newcomer to the sector. According to Coinmarketcap.com data as of 5 p.m. ET Monday, the cryptocurrency has risen 486 percent in the last month, making it the 12th-largest cryptocurrency by market value. As of 5 p.m. ET, its market value had topped $16 billion, outranking large corporations such as American Airlines Group Inc. and Ralph Lauren Corp., according to the data source.
“If it’s not [Shiba Inu], people will keep flocking to smaller-cap altcoins and meme currencies,” said Nate Maddrey, a senior research analyst at Coin Metrics. Even dogecoin, the satirical cryptocurrency that rose in value earlier this summer, is “kind of passe at this point,” according to Mr. Maddrey.
Caitlin McCabe can be reached at [email protected]
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The “amc marketwatch” is a blog that covers the latest news and events in the world of retail investing. The blog includes articles on how to invest your money, as well as other useful information.
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