US share trading cools as hot stocks fade and lockdowns ease

Trading by amateur US investors has ebbed as popular bets stumble and vaccine programmes prompt consumers to focus on holidays and big purchases rather than have-a-go market speculation.

The 21-day moving average of US retail trading flows has fallen almost 20 per cent from a February peak to $1.2bn a day, according to data from Vanda Research, clashing with widespread expectations that new fiscal stimulus cheques would immediately ignite a new surge.

The more hesitant tone suggests a pullback in popular stocks such as Tesla has reminded investors that, contrary to the online mantra, stocks do not only go up. Some newcomers entered the market just as shares in the electric vehicle maker started to soften in late January.

“Sitting on these losses, investors are less likely to deploy capital immediately,” said Viraj Patel, a strategist at Vanda. “We’re not seeing net selling — they’re just waiting for a rebound in some of these names.”

The broad S&P 500 hit a fresh high on Thursday, but many high flyers that were popular with retail traders during a period of heavy activity early in 2021 have pulled back sharply. Tech shares have underperformed the market in recent weeks, hit by rising long-term bond yields and by expectations of a recovery from the pandemic that has made more economically-sensitive stocks look more appealing.

While retail trading activity has taken a hit, overall investor confidence remains high. Overall inflows into global equity funds hit a record weekly high in mid-March, with US stock funds attracting the most new money, EPFR data show.

A key measure of consumer sentiment reported by The Conference Board has also been climbing, rising in March to its highest level in a year. This “renewed optimism” has prompted Americans to boost their “purchasing intentions for homes, cars and several big-ticket items,” said Lynn Franco, director of economic indicators at The Conference Board.

The number of passengers screened for flights rose in March to levels not seen since before the pandemic, according the US Transportation Security Administration, as the vaccinated population grows and people travel for holidays or to see family

“People are spending, thinking about taking trips. I’m not sure they’re going to come back to the market any time soon,” Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said.

Federal stimulus cheques, part of the $1.9tn financial package passed by President Joe Biden in early March, also failed to drift into equity markets the way previous stimulus has, in part because the direct stimulus delivery was staggered, meaning it did not arrive in investor bank accounts simultaneously and many investors have yet to receive their stimulus.

Options trading by retail investors, a riskier trading practice than holding stocks outright, had also hit record high levels in the past few months. However, investors are increasingly sitting on the sidelines

The volume of single contract options — the industry standard for tracking retail margin trading — has plummeted in recent weeks, according to Morgan Stanley.

Trading activity by everyday investors had consistently hit record highs since the start of the pandemic, as free stock trading combined with spare cash and government stimulus pushed investors into equity markets.

Average daily trading in the first months of 2021 hit an average of 15bn shares a day, up from 10.9bn in 2020 and 7bn in 2019, according to research by Piper Sandler.

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