May 2, 2022 - Economy & Business

Appetite for new retail investors tested in rocky market

Illustration: Annelise Capossela/Axios

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.

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