The retail investor stock buying boom is just getting started: GS

Yahoo Finance’s Brian Sozzi breaks down why retail investors are eating up meme stocks in 2021.

Video transcript

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MYLES UDLAND: Welcome back to "Yahoo Finance Live." Today's story is all about what's happening in the crypto markets. But of course, this is a close cousin, Sozzi, of what's been happening in the retail and the meme trade. And Goldman Sachs out with some research over the weekend showing just how much fun the retail trade continues to have. And of course, the massive performance we've seen in AMC is really helping the whole basket of retail favorite stocks.

BRIAN SOZZI: Right, Myles. And if you believe what Goldman Sachs Chief US Equity Strategist David Kostin wrote over the weekend, really, those bids and then volatility under an AMC, a Blackberry, a GameStop, you name it, those popular meme stock trades, it may not be over this year by a long stretch. Kostin raising his estimate on a household net equity buying to $400 billion this year from $350 billion. In the first quarter Kostin notes, households were the largest source of equity demand, with net purchases of stocks of $172 billion. So he sees that essentially accelerating, at least for the next two quarters.

Also interesting to note here, he says households, based on his estimates, currently allocate 44% of their assets to equities. That's only slightly below the all-time high of 46%. When was that? Back at the dotcom heights in 2000, which is very interesting. Perhaps telling, and a bit worrying here. But ultimately, Kostin sees this buying activity or this appetite to buy more stocks boiling down to really continued low rates on money market funds and low credit yields. Also, he believes a sustained increased inflation could favor equities over bonds or cash.

Certainly, it makes sense to me. But overall my take is this-- I'm not saying retail investors are not sophisticated. I think, clearly, we have learned this year that retail investors-- this is a different breed, they have more tools at their disposal than ever before, and they do, in fact, know what they're doing. But those getting into the market right now will be entering a different market today compared to earlier this year.

I think what the Fed announced last week, and we've seen the pickup in volatility as a result, really it makes a market a lot different. The Fed was pretty much hinting at low rates and more bond buying for the most part of this year. That dynamic has changed. And underneath the market's surface, you're now seeing investors position a little more defensively. They're rotating at defensive-type names, they're rotating a little more into big-cap tech, which has defensive properties. So it's a different market. And if they don't pay attention, they could probably get clobbered.

JULIE HYMAN: Well, what is Kostin's conclusion on all this, Brian? I mean, is he saying that the interest on the part of retail investors is going to help sustain a rally in stocks? Or what is he recommending?

BRIAN SOZZI: Doesn't make that-- does not make that conclusion in here. He ultimately expects more households is just come up there and continue buying the market, because the market remains near at all-time highs. And it's not just households. And Kostin has been writing about this extensively. It's these corporations continuing to buy back a good portion of their stock. So he does see two potential catalysts, he just doesn't come out definitively and say, hey, these are going to help power the market to a new record high by year end.

JULIE HYMAN: Hm.

MYLES UDLAND: All right, interesting stuff there on the state of the retail rally and who owns the stock market. A good Yahoo U-- I know we've been asking for the Yahoo U. If you look at the Z1 Flow of Funds, inside of the households group actually includes, also, pension funds, hedge funds, and other investment type vehicles, so you can--