Given the better stock market indices, in some sort of coma this week, discussions about financial markets are still waking up retail investors in the US stock market.
Global stocks had the largest weekly cash flow of $ 5.8 billion, Bank of America said, citing global EPFR data. Not all this money comes from day traders, of course, but it is a sign of frenzy. Michael Every, global strategist at the Dutch bank Rabobank, asks an interesting question. “You see how stable a system really is by logically pushing it to the limits, which we do on many fronts,” he says. “How will it work if 50% of people decide to trade daily central bank liquidity for a free journey to prosperity,” he asks. “Obviously someone has to cook and deliver pizza to the merchants of that day.”
This question, for now, will go unanswered (and, in any case, it’s chicken offerings, not pizza, for the Reddit WallStreetBets crowd). But a new piece of research quantifies how big the growth of retail investment in the US stock market has been. Using account data from Robinhood Markets and 13-F deposits from major portfolio managers, the researchers were able to estimate institutional and retail demand.
The impact was massive. The researchers found that Robinhood traders accounted for more than 7% of the change in stock returns in the second quarter. Without the Robinhood crowd, the aggregate market cap of the smallest stock quintile in the US would have been over 30% lower.
Some well-known companies were moved by Robinhood long before the GameStop craze broke out. F Ford Motor Co.
profitability would have been 7.5 percentage points lower in the first quarter of 2020 without traders Robinhood and General Electric GE,
it would have dropped another 2.75 points. In the second quarter, Ford’s profitability would have been more than 20 percentage points lower, and Delta Air Lines DAL,
and United Airlines UAL,
it would have been more than 15 points worse each, the researchers said.
“The surprisingly high aggregate impact of the small retail sector is due to the fact that a large fraction of the capital market is managed by institutional investors with inelastic price demand curves,” said researchers Philippe van der Beck of the École Polytechnique Fédérale de Lausanne and Swiss Finance Institute, and Coralie Jaunin from the University of Lausanne and Swiss Finance Institute.
Read the last sentence again and think about it. A large part of the stock market does not care what the price is. Why should I? Extremely popular index funds seek to reproduce indices at any cost. For all the attention paid to short sellers, the Robinhood crowd is able to affect the price of large companies that are owned primarily by passive institutional investors, the researchers said.
And while van der Beck and Jaunin focused their analysis on 2020, they looked at current events. Yes, GameStop GME video game retailer,
and the AMC Entertainment AMC movie chain,
extraordinary rallies took place, while retailers organizing on Reddit’s WallStreetBets forum extorted hedge funds. But what about the headset maker Koss KOSS,
with negligible short interest, which jumped from $ 4 to $ 110?
They applied their GameStop methodology specifically. The purchase of 10% of the outstanding shares of GameStop could have caused a 57% increase in the price of its shares, based on institutional property in July, the researchers said.
Buzz
Entertainment conglomerate Walt Disney Co. DIS,
grew 2% in premarket trade as it reported a surprising profit in the fourth quarter, with subscriptions to Disney + streaming services rising to 94.9 million.
Datadog DDOG cloud monitoring service,
fell 5% as it provided a 2021 outlook for Wall Street estimates. Cyber security firm Cloudflare NET,
fell 6% after its revenue forecasts met Wall Street estimates.
Bausch Health BHC,
grew by 5% in the premarket trade, as activist investor Carl Icahn took a nearly 8% stake in the generic drug maker.
The group of seven finance ministers and central bankers will hold a virtual meeting with a reading around 10 a.m. East.
The University of Michigan Consumer sentiment index highlights the economic calendar. The UK reported a 1% increase in gross domestic product in the fourth quarter, which, however, limited a 9.9% recession for 2020, the worst performance in 300 years. Read what happened 300 years ago.
Market
US ES00 futures,
NQ00,
were lower on Friday morning, with most of Asia closed for the New Year holidays.
The gap between the yields on the Italian TMBMKIT-10Y,
and German TMBMKDE-10Y,
10-year bonds have fallen to their lowest level in six years as the 5 Star Movement has overwhelmingly supported joining a government led by Mario Draghi, the former president of the European Central Bank.
Tweet
“Pink Elephants on the Moon” is a way to describe the current market environment.
Random readings
It’s worth taking a look at this 2015 Vanity Fair profile of Whitney Wolfe Herd, now a billionaire after the online dating app BMB Bumble,
trading debut on Thursday.
Red wine, champagne and Alaska in the oven – the 117-year-old nun who survived COVID-19 celebrated in style.
These pigs can play video games – and they’re pretty good.
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