Day traders take Wall St by storm in record dip buys

On Monday around 1 p.m. in New York, just as U.S. stocks were gripped by the worst trading session in months, Google searches for the “Dow Jones” spiked.
At the closing bell, the Dow Jones Industrial Average had recovered some of its biggest losses and posted its best performance in a month the following day.
This week is a lesson for anyone on Wall Street who thought the day-trading army had backed off: They bought stocks in the fastest record time and deposited about $2.2 billion in stocks on Monday alone, according to Vanda Research.
Even as the stimulus check giveaway fades and the stay-at-home era peaks, Reddit-fueled, Robinhood-powered shoppers remain a force to be reckoned with — their dip buys set the stage for the S&P 500 to hit a record high. on Friday.
“The post-Covid bull market continues to reward retail investors for taking equity risk,” said Mike Bailey, research director at FBB Capital Partners. “I would expect the retail money to keep flowing.” After another jump on Friday, the Dow has just made its fourth weekly gain in five, up 1.1% over the period to a record high. Earnings optimism pushed the S&P 500 back into familiar rally mode. It added nearly 2% over the period.
A study by DataTrek Research suggests that Google searches for the Dow are a telltale sign of future retail purchases — a pattern that unfolded this week.
“Over the years, we’ve found this to be the most commonly used American search term for anything related to the stock market,” Nicholas Colas and Jessica Rabe wrote in a note. “The data here shows that retail investors did indeed take note of Monday’s decline (peaking at 1 p.m. in New York, as noted) and were most involved right after Tuesday’s opening.” Still, disappointing US jobs data Thursday and the wave of variants of the delta virus are signs that the post-lockdown economic recovery will be an uphill battle for policymakers, with spike growth fears ostensibly the reason global markets plummeted on Monday.
And even in the retail stock buying data, market bears can see plenty of reasons for caution. Vanda, which tracks trading venue traffic and order flows, estimates they deposited $482 million into the SPDR S&P 500 ETF Trust (ticker SPY) on Monday, its highest amount ever.
That suggests the day trading contingent lacked the confidence to pick individual stocks, while stocks linked to the reopening saw a 40% drop in buy orders from the June 28 sell-off.
“Institutional investors dumped the shares but found little interest from the retail public, making the sell-off even more violent,” strategists Ben Onatibia and Giacomo Pierantoni wrote in a weekly note.
Meanwhile, while all signs point to corporate earnings growth to exceed expectations, major investors appear to be beating a pullback in key trading instruments. According to data collected by Bloomberg, SPY, the Invesco QQQ Trust Series 1 (QQQ) and the iShares Russell 2000 ETF (IWM) have seen combined outflows of more than $7.5 billion in the week through Thursday.
Short yields in the small-cap ETF are near the highest since September, based on the percentage of shares lent, according to data from Markit Ltd, suggesting that investors are betting on companies that are strongly tied to the domestic business cycle. Still, retail investors have enough spare ammunition to bail out the stock rally again, with DataTrek estimated to estimate about $400 billion in dry powder.
“Unlike some institutional investors who may be hungry for new funds, most retail investors enjoy a stream of income (salary, dividends, rent, etc.),” Vanda’s Onatibia and Pierantoni wrote.
“Therefore, we wouldn’t be surprised if we see strong retail purchases in the future, but their appetite to buy something riskier than indexed funds and blue chips seems limited for now.”