Mom and Pop Are On Epic Stock Buying Spree Fueled by Free Trades

davfor

This spooky headline caught my attention. I have been looking for a present day version of the 20th century's Nifty Fifty to clearly appear on the scene. Perhaps zero commission trading costs will help provide the necessary catalyst. (This is a Bloomberg link so it may be blocked to some. I rarely click on their links so I got thru.)

Along with E*Trade Financial Corp., daily average revenue trades -- a standard industry metric that may be a bit of a misnomer now since buying and selling is free -- have almost doubled to an all-time high since last September, data compiled by Sundial Research showed.

“When you take a bull market and juice it with zero commission trading, we can expect it to generate interest among retail accounts. That, it did,” said Jason Goepfert, president of Sundial. “Retail traders have become manic.

Individual investors were seen as indifferent participants for much of the 11-year bull market. No more. ”

https://bloomberg.com/news/articles/2020-02-21/free-stock-trades-are-stirring-an-epic-mom-and-pop-buying-frenzy?srnd=premium

Mark

Meh, economies of scale. When you can add/subtract to your investment(s) without the overhead of a transaction fee why not.

catch22

We humans are an interesting bunch, eh?

Free stock trades are kinda like a gas station offering a 2 cents discount per gallon of gas if one purchases $10 worth of product (chips, whatever) from the store area inside the gas station.

WABAC

davfor said:

This spooky headline caught my attention. I have been looking for a present day version of the 20th century's Nifty Fifty to clearly appear on the scene. Perhaps zero commission trading costs will help provide the necessary catalyst.

So. You're expecting a long bear market with PE ratios dropping to 10, or lower? That would be more than a Minsky moment. And there are no rules saying we won't see those numbers again.

Has FOMO frenzy finally arrived?

Jill Mislinski provides margin debt numbers, among many others at this link.

davfor

@WABAC I suspect there a significant chance that "some day" PE ratios will drop that low again. Something akin to the Nifty Fifty route for that happening is just a possibility I look out for. And, zero cost trading reasonably makes it somewhat easier for that outcome to happen. Presently I don't think its likely anything more than a garden variety pullback of 20% or so will occur in the near term unless some outside shock to the system intervenes (a large scale, long lasting pandemic might be one example). A garden variety 20% pullback will cause me to tweak my current investments to re-balance but not much more.

WABAC

davfor said:

@WABAC I suspect there a significant chance that "some day" PE ratios will drop that low again.

My parents saw those lows twice. My grandparents saw them three times, or more.

davidrmoran

https://www.multpl.com/shiller-pe

My wager is CAPE will never hit 10 again

twice that, sure

davfor

This is just to follow up on my pandemic comment above. Today I noticed the NYT recently ran an article about coronavirus as it relates to current stock market valuations. (The next one to two months should reportedly provide us a good indication regarding how serious and globally widespread of a threat this particular virus will turn out to be.) Continued faith in the Fed's capabilities is thought to be key. Here is an excerpt from the NYT article:

So stock investors who remain bullish despite the coronavirus risks are in effect making two big bets rather than one.

First, they are betting that the Fed can and will act if necessary should the virus start to do real damage to the economy. Second, if that were to happen, they are betting that the Fed’s diminished capacity to deal with future shocks won’t be a problem.

https://nytimes.com/2020/02/20/upshot/coronavirus-stock-market.html

WABAC

Pushing string.

rforno

Epic stock buying sprees by mom and pop investors, mostly on momentum stocks making headlines .... gee, where have we seen this story before and how does it end again?

parsig9

Wrong time to chase the market. Ever since CNBC stopped allowing comments I read more Marketwatch discussion. I know the Fed can go lower and there is talk of zero and negative rates but they use this to justify confidence and buying at least through the summer or depending on the election forecast. I think this is insane. Very little learned since '08 and now with home prices through roof and national and household debt soaring I am thinking it's time to batten down the hatches. Like TRBUX kind of hatches.

WABAC

I'm wondering how Mom and Pop are feeling just one week later?

rforno

Yup. I kinda called it on 2/23.

WABAC said:

I'm wondering how Mom and Pop are feeling just one week later?