Last week, the stock market experienced a tumultuous ride, with prices fluctuating significantly and volatility intensifying. Who’s responsible for this? Individual investors.
What happened in the world?
Individual investors have become more active over the past year, thanks to commission-free trading from popular trading apps like Robinhood and the pandemic that kept many people at home and distracted. Trading by individual investors now accounts for about 20% of stock activity, peaking at 25% on some days, compared to around 10% in 2019, according to Joseph Mecane, head of execution services at Citadel Securities.
What happened next?
Individual investors cheered on forums and cursed Wall Street. Brokerage firms restricted trading to slow down the attack. Lawsuits were filed. Watchdogs and members of Congress began investigating.
What do people think about this?
“This is the new normal,” said Alexis Ohanian, co-founder of Reddit, in an interview with CNBC on Thursday. “We’ve seen the internet over the last decade, thanks to the rise of social media and this infrastructure, create a bottom-up revolution in many industries. We’ve seen it in media, we’ve seen it in various sectors, and now it’s happening in finance.”
Market analysts also focus on the idea that these are signs of an irrational market. “Trading activity is another indicator of exaggerated trends, which have been seriously building since last fall,” Charles Schwab wrote in a report on Thursday. “Recently, it entered a unique new phase driven by individual traders.”
This “exuberance” from individual investors is often seen as a sign of a market peak.
“What’s most striking is the intensity and enthusiasm of the bulls, how overexposed stocks and the market are, and above all, the escalating animosity towards the bears,” wrote Jeremy Grantham, co-founder of GMO Investment and Asset Management, in a letter dated January 5. “In recent months, the tone has turned hostile quickly.”
Source: https://www.thebalancemoney.com/individual-investors-turn-wall-street-on-its-head-5101449
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