Retail investors are back, and they’ve brought the noise with them! They represented almost 50% of total volume traded on Thursday. This resurgence has spurred a dramatic increase in market activity. Fewer than a couple dozen underappreciated stocks and it’s being dubbed “memestock déjà vu,” or “the second coming of the stimmy horde,” by most financial analysts. While retail investors are aggressive traders, institutional investors have moved to a wait-and-see approach. Such behavior reveals the deeper divide between these two factions at a time of heightened macroeconomic fragility.
The market saw a record influx of buyers as retail investors funneled their trades into the market—leading to a mode that some are dubbing “full berserker mode.” The intensity of this activity is remarkable given the backdrop of geopolitical tensions, inflation fears returning to the fore, and a divergence in comfort levels between central banks. Institutional investors are trying to navigate these tough macro circumstances. At the same time, the valiant retail trader right now is fearlessly embracing today’s crazy upside market.
Data from financial markets shows that retail investors have been especially active during the first five minutes of a round of trading. As the market became increasingly volatile over this period, they became aggressive in profiting off price action and market trends. One key to this strategy was the implosion of stock prices. Most importantly, perhaps, has been the retail investor flocking to penny stocks in search of big winners with higher risk/reward ratios.
This change in retail investor behavior is perhaps the most important thing to understand about today’s market environment. Long absent from the stage, these investors are back and vociferously shaping market dynamics. Their return has led to more trading volume and more volatility. This latest wave indicates that they are really starting to establish themselves as a truly competitive force within the broader financial ecosystem, and they’re not just “poking the bear.”
So, as small- and non-institutional investors remain critical to powering bullishness in the market, their power should not be underestimated. Their aggregate trades are shaking up markets, creating volatility large enough to affect both single stocks and larger indices. This trend is a testament to their grit. Perhaps more importantly, it accentuates their power to shape market forces in accordance with whatever investment strategy they eventually pursue.