- With global central banks in a race to the bottom by hiking interest rates to combat the fastest pace of inflation in four decades, a bear market in speculative companies has seen day traders against the ropes.
- But with the institutional selling outgunning retail appetite to absorb those sales, mom-and-pop investors will be put through a real test of nerves to hold through this period.
Without years of experience or fancy reams of research, the zero-fee trading revolution ushered into existence by the likes of SoFi (-5.71%) and Robinhood Markets (-4.62%) created an army of day traders that have since seen their returns, returned to the market.
Akin to the “Occupy Wall Street,” movement, a decentralized attempt to rage against latent social inequalities that petered out because of a lack of focus, there are some who suggest the grassroots-led meme stock frenzy may be petering out as well.
One estimate by Morgan Stanley (-0.67%) suggests that day traders who were buoyed by the meme stock frenzy are nursing losses this year which are far deeper than the market, and have all but returned most of their gains made during the height of buying frenzy.
With global central banks in a race to the bottom by hiking interest rates to combat the fastest pace of inflation in four decades, a bear market in speculative companies has seen day traders against the ropes.
But could it be premature to count the meme stock crowd out altogether?
To be sure, the death of retail traders has been prematurely pronounced on multiple occasions, only to have comeback stronger and mom-and-pop investors have somehow managed to bring their favorite meme stocks back from the dead over and over again.
Retail favorites like AMC Entertainment (-6.33%) are down almost 80% from its June 2021 peak, while overpriced exercise bike Peloton Interactive (-7.70%) is 90% off its record all-time-high.
Unlike Asian markets, retail traders have always been in the minority on Wall Street, but the meme stock craze saw them make up as much as one quarter of all activity at its peak.
That number has since fallen to below a fifth and although professional investors have been slashing equity exposure, the day trading army has held relatively firm, at least in terms of positioning, if not necessarily flow.
According to data from Morgan Stanley, retail traders snapped up some US$14 billion in stocks last month, the second-lowest uptake in any month since late 2020, while in the options market, bearish puts (the option to sell at a certain price) have overtaken bullish calls.
A quick turnaround is unlikely, given that more immediate cost-of-living concerns have already eaten into the amount of excess disposable income that retail investors have remaining to plow into stocks.
But with the institutional selling outgunning retail appetite to absorb those sales, mom-and-pop investors will be put through a real test of nerves to hold through this period.
