Friday, March 14

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Good morning it’s Jenn Hughes here, standing in for Rob and Aiden. Another down day for stocks has done little to steady investor morale, as Vladimir Putin casts doubts on the proposed 30-day ceasefire in Ukraine while the risk of a government shutdown looms over Washington. Sixteen trading days since its record high, the S&P 500 closed Thursday in a correction — that is, down 10 per cent. Some might consider that cause for a drink, if only President Donald Trump hadn’t threatened 200 per cent retaliatory tariffs on imported European booze. Email me your school-level French phrases of horror and alternative alcohol investment ideas: jennifer.hughes@ft.com 

Main Street’s moment 

Retail investors are all the rage on Wall Street. Last week Nasdaq joined the race to host round-the-clock stock trading where smaller investors are leading the way. Meanwhile, Chicago giants CME and Cboe Global Markets — once strictly the domain of luridly-jacketed pros — are shrinking the contract size of new products to appeal to mom and pop. Micro soybean futures, anyone?

The message from the big guns is that retail has become a bigger force in the market as technology has improved access to data and information, and as the idea of active self-directed investing becomes more mainstream.

For stocks, go back a few years and the turning point is very clear: Covid lockdowns left people casting about for something to do, only months after the big brokers began offering zero-commission trading.

In stocks particularly, small traders have been huge buyers of dips, helping put a floor under some dire days. Early August’s tech-led rout was one notable example as retail brokers reported buying right through the sell-off. Even more recently there was January’s “DeepSeek Monday” when Nvidia plummeted as markets caught on to the AI darling’s cheaper Chinese competitor. Right through the selling, retail piled into the US chipmaker in record amounts.

Why this matters now is because we don’t know how this group will be affected by a deeper downturn, or even more of the sort of rocky mood under way.

And small investors matter. Their moods can sway Washington politics, while the risk that any disappearing stock market wealth hurts broader consumer confidence is also very real.

On the surface, mom and pop have held mostly steady so far according to Vanda Research, an investment flow specialist, with inflows continuing even as benchmarks have slid.

Retail brokers are reporting something similar which looks at first glance like more of the buy-the-dip trading seen in other recent market dramas.

Interactive Brokers’ regular list of its most-traded stocks were all net buys last week and its chief global strategist Steve Sosnick says that bias has continued this week.

More from Sosnick: 

With a few exceptions in 2022, buying the dips has been a great strategy for this influx of active traders. The question is whether this is now loyalty to a strategy that’s worked so well, or is it an inability to change strategies? It concerns me that they could be just trying to say, hit every tennis ball with a forehand.

But there are signs of changes beneath perennially popular retail buys such as Tesla and Nvidia (the most-traded at both Interactive and Charles Schwab). 

Broking giant Schwab reports that while net transactions in terms of trading volumes are still strong, their dollar value is in fact negative, suggesting smaller buy orders and bigger sales.

Last month Schwab saw net sales, in dollar value terms, for all but two of the 11 sectors that make up the S&P 500. That continued last week, according to Joe Mazzola, the broker’s head trading and derivatives strategist. Only financials and energy are seeing genuine inflows.

More from Mazzola:

Look at attitudinal versus behavioural surveys. You’re still seeing some buying on the behavioural side of the market. But what’s interesting is that attitudes have really skewed bearish. So it’s a case of ‘am I doing what I’m saying I’m doing?’ Even though people are saying we’re really bearish, we’re not seeing liquidations. There’s a lot of indecision.

Small investors are hardly the only ones shifting from buying every dip to a wait-and-see stance.

The chart above is borrowed from Vanda: the green line represents what AAII survey respondents are thinking, the purple line reflects what they’re doing — and so far they’re not running for the hills.

There are some signs of a retail pullback in the more risky areas, such as trading small-cap stocks where, particularly at the microcap end of the market, trades often look more like gambling — in other words, memecoin-like bets that something will go up, which are more akin to a flutter on the horses than someone’s savings plan. They’re the obvious trades to jettison in a wait-and-see mood.

Retail has traditionally been dismissed on Wall Street as cyclical, panicky money that piles in late to trades and is quick to run away when the mood turns.

Broker shares are lower since the market peak, suggesting investors expect that to happen again.

Robinhood — most associated with smaller, less experienced traders — has been by far the biggest casualty, down almost 40 per cent — though its worth noting it is still double its level a year ago.

Retail has traditionally been dismissed by Wall Street as cyclical, panicky money that piles in late to trades and is quick to run away — and then stays away — when the mood sours.

Mom-and-pop habits and preferences in rockier markets are still largely untested — at least, at these levels of activity. Over time, as access to trading tech and data continues to improve, retail should become almost indistinguishable from professional money. So far their moves suggest they’re blending in pretty well.

One good read

Would $50 oil really be good for the US?

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