US families are for the first time the most active investor in the century

Between stimulus checks, virtual burrows fueled by Reddit foreros and unmatched monetary conditions, the retail investor closes an enviable year. In fact, households already own 38% of the $ 75 trillion of the US stock market. Not only that, For the first time since 1999, the largest owner of the American stock market has also become the most active trader in 2021.

“If there was ever any question about who has wielded the most power in the stock market, the American retail investor has stolen all the limelight in 2021,” acknowledges Tony Pasquariello, head of global macro sales at Goldman Sachs. In this sense, it stands out how, in the year that we left behind, there have been more inflows of money in the American stock market than in the previous 25 years combined.

Foreros and applications

This year has shown us that retail activity is likely to remain relatively strong, as free trades and persuasive design of many mobile apps have helped usher in a new wave of active operators.

Their trading patterns have favored individual stocks over diversification and have thrown fundamental valuations down. See examples like GameStop or AMC Entertainment, to name a few. A dynamic that has been enhanced by the coordination power of many of these investors in online forums (such as WallStreetBets), which has not only amplified their influence but also contributed to strong fluctuations in volatility. It should be remembered how at the beginning of 2021, the “Reddit foreros” were responsible for a short squeeze [barrida de cortos] It affected GameStop, a video game retailer, and AMC Entertainment, the theater company, which caused losses of at least $ 12 billion to both institutional investors and many hedge funds. The Alternative Investment Management Association, a body run by hedge funds, called the frenzy a true “market distortion.”

Looking to 2022, analysts expect retail investors to fade back into the background

“In many days, the options market has outperformed the underlying cash equity market. Whether it is a short-term bullish gamma, exploited by retail investors in their individual favorite stocks, or this is a record demand for index protection by professional investors, at various times we have seen the clear traces of the old purchase and sale options in the market “, Pasquariello adds.

In addition to stocks, a daily average of 39 million options contracts were traded this year, 35% more than in 2020, according to Options Clearing Corp. Retail investors represent more than 25% of total trading activity of options, due to easy access through online brokers without commissions, according to data from Alphacution Research Conservatory. Options are a form of derivatives contract that gives buyers the right to buy or sell a security at a specified price at some point in the future.

However, some of the factors that have contributed to the increase in operations, such as disposable income and confinements, will subside in 2022. Also market conditions, as the Federal Reserve prepares to raise the interest rates up to three times next year in order to cool the rise in prices.

Looking to 2022, analysts expect retail investors to fade back into the backgroundAs a promising performance measured and fears of inflation will “bore” many novices. Perhaps this trend has already been noticeable since the third quarter, when Robinhood’s monthly active users reached a total of 18.9 million, down from the 21.3 million registered in the second quarter, which shows an apparent slowdown in growth of users.

Still, Reddit forums indicate otherwise, as these retail investors’ enthusiasm for the market remains high. Among the currently most popular stocks on Reddit in the last 24 hours of writing this review are (by trading volume) Tesla, Apple, Amazon, Nvidia, AMD, GameStop, Microsoft, Palantir, Meta and Robinhood. That being said it is unlikely that the return of more than 600% that accumulates a value meme par excellence, like GameStop, be sustainable next year.

Despite the power demonstrated by retail investors on this side of the Atlantic, Goliath continues to dominate part of the dynamics of the American stock market. We must not forget that the top 1% of US households own 53% of the US equity capital and the top 10% own about 87% of the capital, according to data provided by Goldman Sachs. According to Ryan Hammond, a strategist at the US bank, this is the group of investors he is tracking for the beginning of the year. “His financial advisers are making the calls now and advise to protect against inflation and not have bonds,” he confesses in a note to his clients.

For Hammond, as of next January 3, the marker of the American stock market is reset. In this regard, he shows how there has been no fear of being left out (the famous FOMO, for its acronym in English) since institutional investors have played on the defensive instead of on the attack. That said, it warns that this reaction strategy will change from next month. “I have followed the asset allocations and the flows are promised consistent and large,” he anticipates.

What to expect from the S&P 500?

According to the survey among the main strategists carried out by CNBC, the average of the 13 investment desks places the S&P 500 at 4,895 points next year. The median is somewhat higher, standing at 5,050 points.

Projections vary enormously between different strategists. John Stoltzfus, from Oppenheimer, is postulated as the most optimistic when placing the indicator at 5,330 points in 2022. However, on the other side of the scale is the chief strategist of Morgan Stanley, Mike Wilson, who anticipates a fall in the S&P 500 over the next year to 4,400 points. Not far behind is Savita Subramanian, Savita Subramanian, from Bank of America, who believes that this index will be at 4,600 points. BMO’s Brian Belski puts it at 5,300.