As the broader stock market indices this week are a bit of a coma, the discussion on financial markets is still the awakening of retail investors to the US stock market.
Bank of America says the largest weekly inflow of money ever, at $ 5.8 billion, the EPFR Global data mentioned. Of course, not all money is from day traders, but it’s a sign of insanity. Michael Every, global strategist at the Dutch bank Rabobank, asks an interesting question. “You just see how stable a system really is by pushing it logically to its extreme, which we do in several areas,” he says. “How will it work if 50% of people decide to trade liquidity in the central bank for a free ride to prosperity,” he asks. “Of course someone has to cook and deliver pizzas to those day traders.”
The question will remain unanswered for the time being (and in any case, it’s chicken tenders, not pizza, for the Reddit WallStreetBets crowd). However, a new research article determines how large the impact of the boom in retail investment was on the US stock market. Using Robinhood Markets account holdings data and the 13-F files of large portfolio managers, researchers were able to estimate the demand for retail and institutional estimates.
The impact was huge. The researchers found that Robinhood traders gained more than 7% of the variations in equities in the second quarter. Without the Robinhood crowd, the total market capitalization of the smallest quintile of American stocks would have been more than 30% lower.
Some well-known businesses were relocated by Robinhood, long before GameStop mania began. Ford Motor Co. see F,
yields would have been 7.5 percentage points lower in the first quarter of 2020 without Robinhood traders, and General Electric GE,
would have dropped another 2.75 points. In the second quarter, Ford’s returns would have been more than 20 percentage points lower, and Delta Air Lines DAL,
and United Airlines UAL,
the researchers said they would be more than 15 points worse.
“The surprisingly large overall impact of the retail sector is due to the fact that a large part of the stock market is managed by institutional investors with price-inelastic demand curves,” said researchers Philippe van der Beck of the École Polytechnique Fédérale de Lausanne and Swiss Finance Institute, and Coralie Jaunin of the University of Lausanne and Swiss Finance Institute.
Read the last sentence again and think about it. A large part of the stock market does not care what the price is. Why should they? Many popular index funds want to replicate indices at any price. Despite all the attention paid to short sellers, the Robinhood crowd could influence the price of large companies mostly owned by passive institutional investors, the researchers said.
And while van der Beck and Jaunin focused their analysis on 2020, they did look at current events. Yes, the game retailer GameStop GME,
and cinema chain AMC Entertainment AMC,
extraordinary rallies were seen when retailers who arranged on Reddit’s WallStreetBets forum squeezed out hedge funds. But what about the headphone manufacturer Koss KOSS,
with insignificant short interest rates, which jumped from $ 4 to $ 110?
They applied their methodology specifically to GameStop. The purchase of 10% of GameStop’s outstanding shares could have caused a 57% rise in its share price, based on institutional ownership from July, the researchers said.
The buzz
Walt Disney Co. Entertainment Conglomerate DIS,
rose 2% in pre-traded trading as it reported a surprising fourth-quarter profit as Disney + streaming service subscriptions grew to 94.9 million.
Cloud Monitoring Service Datadog DDOG,
has fallen by 5% as it offers a 2021 outlook below Wall Street estimates. Cyber security company Cloudflare NET,
fell 6% after its profit forecast met Wall Street’s estimates.
Bausch Health BHC,
rose 5% in trading on the market as activist investor Carl Icahn took a nearly 8% stake in the generic drug maker.
A group of seven finance ministers and central bankers are holding a virtual meeting with a lecture around 10am Eastern.
The University of Michigan’s consumer sentiment index highlights the economic calendar. The UK reported a 1% increase in fourth-quarter gross domestic product, which nonetheless limited a decline of 9.9% for 2020, the worst performance in more than 300 years. Read what happened 300 years ago.
The market
US futures contracts ES00,
NQ00,
Friday morning was lower, with most of Asia closed for New Year celebrations.
The gap between the yields on the Italian TMBMKIT-10Y,
and German TMBMKDE-10Y,
10-year bonds fell to their lowest level in six years when the 5-star movement overwhelmingly backed a government led by Mario Draghi, the former president of the European Central Bank.
The tweet
‘Pink elephants on the moon’ is one way to describe the current market environment.
Random reading
It’s worth checking out this 2015 Vanity Fair profile of Whitney Wolfe Herd, now a billionaire to the online dating app Bumble’s BMBL.
trade debut on Thursday.
Red wine, champagne and baked Alaska – the 117-year-old nun who survived COVID-19 celebrated in style.
These pigs can play video games – and also pretty well.
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