Retail investors are still buying stocks

Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman discuss retail’s participation in the market.

Video transcript

MYLES UDLAND: But we begin the 10 o'clock hour discussing the Yahoo Finance Morning Brief. And today we took a look at the role of the retail trader within this market. A couple of conflicting signals, but ultimately, I think, affirming that the individual traders we all got so excited about continue to play in this market. So we'll start with what we heard from the team over at-- or let's start with the chart we got here from the team over at Deutsche Bank. This is basically showing the volume of single stock call options that are out there in the market.

And we think about the YOLO trade. What is it? It's individuals that have 1,000, 2,000 bucks in their Robinhood account with easy access to options, buying out of the money short dated calls on GameStop, on AMC, on the killer B's, right? Best Buy, BlackBerry, Bed, Bath and Beyond. And seeing the balance in their account go up a couple hundred, a couple thousand percent, I know some folks who thought they made a bunch of money trading options, didn't close out the position, and were left with nothing. But that's sort of the way things go. And that was all the fun that people were having back in the earlier part of 2021.

And we've seen the air come out of that market. So Deutsche Bank going with the view that retail's role driving that true YOLO trade is on the decline. However, we also got a report from Bank of America looking at just fund flows over the last several weeks. And for the eighth straight week, retail traders, according to Bank of America's data, were net buyers of stocks. This coming after hedge funds have been net sellers of stock for three straight weeks. And last week, net outflows from equities totaled more than $5 billion. It was the highest since November.

So, Julie, you look at the chart that we see from Deutsche Bank. And certainly, the most-- or let's say, the wildest part of the individual trader, that seems to be cooling off. But there was some data, some polling data that we cited a couple of months ago that indicated retail traders were not just going to completely ignore the market. And I think some of that flows data shows that people are still interested in the market and still want to participate, even if it's not, you know, in the most-- I won't call this irresponsible, but the riskiest way possible with taking on the biggest bets with some of this call stuff that we saw, some of those options trading, again, that we saw back at the beginning of the year.

JULIE HYMAN: Yeah, I mean, I think we can say frothiest trades, right, or meme-iest trades, whatever weird adjective you want to use. I mean, if you look at the SPACs, for example, that ETF that tracks the SPACs, we have seen that off some 30% from its highs. We've seen the ETF that tracks IPOs, some of the air come out of that. So this is reflective perhaps of what we're talking about here, some of the air coming out.

But to your point-- and perhaps another point I would make is even if people aren't getting those stimulus checks anymore, and they're not putting new money to work, that doesn't mean they're still not moving their money around within the market, taking profit maybe on some of the names that still are up and putting it elsewhere. We see that happen in the cryptocurrencies, for example. Even though they're down presently, we saw money flow into them.

So even though the retail traders might not be as new and large a force, at the margins, they're still going to be a force as they shift their assets around in the market. And that won't necessarily show up in the new-- net new flow data, but I think that we'll still see certainly instances of that, whether it's in name stocks or in other areas of the market.

BRIAN SOZZI: Myles, what brings that retail trader back?

MYLES UDLAND: Well, I guess the thing is, I don't think they left, right? Like, I don't think-- Deutsche Bank says in their note, just because you're seeing fewer folks trade options doesn't mean that retail's not in the market. And I think that there is this very pro-- and by that, I mean market pro view that, oh, people are just coming in for a quick buck, and they'll lose interest when the market starts going down. And look, maybe that's the case. I mean, the market hasn't really gone down at all over the last year.

And so, if we do see a sustained flat period for the market or a sustained 10%, 15% drop that takes two or three months, sure, then maybe we'll find out what retail traders are made of. But after 20 years, where retail is underweighted stocks, retail is not playing in the market, to see a completely new generation-- I mean, kids, [INAUDIBLE] in grade school when there was the last tech bubble. And now they're in their mid 30s at-- entering their peak earning years. So yeah, they've got money, and why wouldn't they have some of it in the stock market and be more interested in that as a way to build wealth and just as a way to diversify themselves outside of just working and paying down their student loan debt?

So, I mean, I don't think it should be such a shock that retail continues to be a part of this market. I just-- I don't think that you're going to see the same volume of Robinhood-based call options continue forever. So I guess, Soz, to answer your question, the point is that retail hasn't gone away. I think people want it to go away. But I just don't think the data suggests that that has happened.