World Cup 'brotation' may have added to market woes
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Did the World Cup kill the momentum trade?
Why it matters: A tumble in so-called momentum stocks — which worsened Tuesday with a steep drop in semiconductors — has weighed on the overall market since the S&P 500 peaked in early June.
Between the lines: The selloff in momentum — one of the "factors" that quants use to describe and organize the market according to certain well-established characteristics — came as retail traders cut their net buying activity sharply, Vanda Research wrote in a note this week.
What they're saying: "Daily retail net buying of single stocks remains at its lowest level since 2020, with the 21-day average sitting well below recent norms," Vanda Research said.
The intrigue: What accounts for the turndown?
- Here's a theory: Perhaps individual investors turned their speculative gaze to the global sports pageant that is the World Cup over the last few weeks.
- The tournament briefly pushed soccer to the fore of the American collective consciousness, simultaneously setting off a surge in prediction market sports betting.
Case in point: Prediction market Kalshi saw downloads on Apple's App Store surge during the tournament, which stretched from June 11 to the final on July 19, when Spain defeated Argentina in a 1-0 extra-time battle.
Zoom in: The timing of the turndown in stock buying and an uptick in sports betting suggests that some saw taking bets on soccer as a fungible form of gambling with market speculation.
Yes, but: To be clear, correlation is not proof of causation.
- There were a lot of other things going on outside the World Cup in June and July, from the signing and subsequent collapse a couple days later of the Trump administration's initial MOU with Iran to the SpaceX IPO to the first interest rate decision under the Federal Reserve's new tight-lipped chairman Kevin Warsh.
- Some interpreted the Fed's decision to leave rates unchanged as potentially hawkish in the face of persistently high inflation that has already pushed long-term interest rates up sharply.
Context: Still, the disappearance of bullish individual investors over the last few weeks may offer a good example of a so-called brotation — that is, a shift in trading activity by the heavily male, risk-seeking ranks of retail traders out of one preferred asset and into another.
- The original brotation — the term was coined, it appears, by the Financial Times — was a bro-based shift out of crypto trades and into SpaceX's soaring stock when it made its market debut.
