Appetite for new retail investors tested in rocky market
The market’s rocky start to 2022 is testing the mettle of retail traders who dove head first into the stock market earlier in the pandemic.
Why it matters: Last year’s meme stock phenomenon helped usher in a new generation of retail traders, who are expected to continue to have a significant influence on the market. How active they remain will shape the financial services industry.
Details: Robinhood, the poster child for the meme stock revolution, recently announced it would cut its full-time staff by 9% after its rapid expansion.
- Meanwhile, Fidelity last week said it plans to expand its headcount by more than 50% over the next three years amid growing competition for investor demand.
State of play: Retail trading levels have dropped off after last year’s boom, according to S&P Global Market Intelligence.
- At the same time, traders are still more “active and potent” than they were before the pandemic, according to the same report.
- While retail traders may have ditched individual meme stocks and penny stocks, they’re pouring into exchange traded funds (ETFs) — particularly those designed to bet on market drops.
What they're saying: Investors have been more cautious over the last several months, Robinhood CFO Jason Warnick told Axios on a call last week.
- “They're trading less and they're engaging a bit less, particularly customers with smaller balances … they’re certainly paying attention to the macro environment, which has a lot going on.”
The big picture: For most of Robinhood’s history, traders were living in an environment of low interest rates, low inflation and rising markets.
- Some came in during the infamous declaration by retail trading booster Dave Portnoy in late 2020, that “Stocks. Only. Go. Up."
- “Our customers are now experiencing all three of these trends going in the opposite direction, perhaps for the first time in their lives,” Warnick says.
Of note: In the annual meeting of his investment company Saturday, buy-and-hold proponent Warren Buffett criticized Wall Street for turning the stock market into a “gambling parlor,” saying big stocks have become “poker chips.”
What to watch: How many investors stick around, and what they have an appetite for.