Retail investors are still buying stocks: Morning Brief

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Wednesday, April 21, 2021

YOLO trades might be fading, but retail is still around. 

The stars of the show in financial markets during the first quarter of 2021 were retail traders. 

Retail fueled meme trades, made Roaring Kitty a star, and flummoxed market professionals who insisted this participation would not last. Even though less than two months ago we highlighted survey data that suggested retail traders weren’t going anywhere. 

And according to data from Bank of America Global Research published this week, individuals remain a durable source of buying in this market. And last week, retail was the only bid still out there. 

“Retail clients were the only buyers last week, while institutional and hedge fund clients sold,” said Bank of America strategists led by Jill Carey Hall. “Retail clients have been buyers for the eighth straight week, while hedge fund clients sold for the third straight week.”

The team at Bank of America notes that cumulative equity flows last week totaled a net $5.2 billion worth of outflows, the largest one-week move out of stocks since November and the fifth-largest on record. In the past, these kinds of exoduses from the market have portended shaky periods for investors. 

“In the prior times weekly flows were this (or more) negative, the subsequent week’s returns were -1% on avg/median with negative returns 75% of the time,” the firm notes. “Four-week average flows have been trending lower in recent weeks and have now turned negative for the first time since mid-Feb, suggesting a pause to increasingly euphoric sentiment.”

Stocks on Tuesday fell for the second-straight day this week after closing at record highs last week. Action that is certainly in-line with what Bank of America’s work suggests. 

But data from strategists on the Street does show that retail’s participation in this market is not what it once was. The strategy team over at Deutsche Bank led by Binky Chadha published a report late last week showed that single-stock call options — a core part of the YOLO trade powered by retail — has been declining in recent weeks. 

Deutsche Bank’s work does, however, capture the same relative strength in retail flows last week as was picked up by Bank of America. But the firm writes that “as the economy has been reopening and the stimulus payments mostly behind us, we have seen signs of this group reducing its market activity.”

“Most recently, retail activity looks to have ticked up modestly again, though it remains well below its January peak.” the firm adds. “We expect retail activity to continue to fade with reopening and especially a return to work.”

Single-stock options activity has declined, a sign to analysts at Deutsche Bank that retail enthusiasm in the market has waned in recent weeks. The bank expects this trend to continue as the economy re-opens. (Source: Deutsche Bank)

Single-stock options activity has declined, a sign to analysts at Deutsche Bank that retail enthusiasm in the market has waned in recent weeks. The bank expects this trend to continue as the economy re-opens. (Source: Deutsche Bank)

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

What to watch today

Economy

  •  7:00 a.m. ET: MBA Mortgage Applications, week ended April 16 (-3.7% during prior week)

Earnings

Pre-market

  • 6:00 a.m. ET: Anthem (ANTM) is expected to report adjusted earnings of $6.52 per share on revenue of $33.04 billion 

  • 7:00 a.m. ET: Nasdaq (NDAQ) is expected to report adjusted earnings of $1.75 per share on revenue of $812.13 million 

  • 6:45 a.m. ET: Halliburton (HAL) is expected to report adjusted earnings of 17 cents per share on revenue of $3.35 billion 

  • 7:30 a.m. ET: Verizon Communications (VZ) is expected to report adjusted earnings of $1.29 per share on revenue of $32.45 billion 

Post-market

  • 4:05 p.m. ET: Whirlpool (WHR) is expected to report adjusted earnings of $5.29 per share on revenue of $4.85 billion 

  • 4:10 p.m. ET: Chipotle (CMG) is expected to report adjusted earnings of $4.91 per share on revenue of $1. The 75 billion 

  • 4:10 p.m. ET: Spirit Airlines (SAVE) is expected to report an adjusted loss of $2.67 per share on revenue of $459.67 million 

  • 4:10 p.m. ET: Las Vegas Sands (LVS) is expected to report an adjusted loss of 26 cents per share on revenue of $1.37 billion 

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