Interview, Panel, Fireside Chat
How Retail Investors Are Shaping Markets
- Retail trading volume in single-stock options is projected to stabilize at roughly 50% on a regular basis, creating a blended risk exposure where retail accounts for approximately 40% of all risk in single stocks, with Goldman Sachs anticipating U.S. security market participation settling into a steady state of roughly 15% driven by zero commissions and gamification.
- Approximately 50% of retail exposure accumulated between 2019 and 2021 was sold in the last five months, and options activity is expected to return to near-normal levels within that same five-month window, signaling that retail froth has largely exited the market despite low unemployment and high checking account cash levels.
- ETF inflows are forecast to maintain a consistent rate through 2020, 2021, and into 2022, as buy-and-hold investors allocate to equities while avoiding speculative tech and biotech stocks, though retail participation may shift toward the ESG market and energy companies viewed as value plays.
- Trading costs are expected to increase significantly across all stocks if non-participable off-exchange volumes persist, creating liquidity sourcing challenges for institutions, while the predictive power of after-market direction regarding next-day trading is projected to decline from nearly 100% accuracy to approximately 50%.
- Retail investors are expected to increasingly employ hedging strategies like long-one-stock-and-short-another to fund positions rather than seeking market neutrality, alongside a shift from a "buy the dip" mentality to consistent selling regardless of market direction due to reduced responsiveness to price movements.
- Automatic systematic flows from 401k plans and payments are expected to remain stable regardless of short-term market volatility, provided the economy remains healthy; however, these flows could retreat if inflation renders basic necessities unaffordable without commensurate wage increases.
- Retail investors with gains from previous tech purchases are expected to engage in disciplined profit-taking as negative momentum sets in, while long-term buy-and-hold participants are projected to act as delayed sellers only upon job loss or immediate capital needs.
- Although retail is expected to cease being a primary market-moving participant, latent risks of single-stock herding persist as 80% of their notional weekly trade remains concentrated on 100 specific names.
- SEC proposals regarding enhanced order-by-order competition for retail are expected to face significant debate and implementation delays, with specific details on incentivizing competition remaining uncertain, while the mechanism of auctions is anticipated to become a familiar process.
- The consumer health sector is expected to remain robust in the near term as banks monitor automatic investments, contingent on wage growth matching inflation; additionally, "crowded out" traders from the lack of IPOs have not yet emerged as a distinct group, and retail focus on high-volatility stocks may shift toward those with more predictable outcomes.