Retail Investors Are Buying This Dip

How are US retail investors responding to recent stock market volatility?

Two datasets to answer that question:

#1. US Google searches for “Dow Jones” and “stock market”. For most Americans the Dow Jones Industrial Average IS the stock market. When they hear equities have taken a spill they Google “Dow Jones” and (with slightly less frequency) “stock market”. An analysis of the locations where “Dow Jones” searches most commonly originate – California, Arkansas and Texas – shows that these queries are not likely for the news organization.

Here is what the latest Google Trend data shows:

  • When US equities are doing well, Americans don’t pay much attention to the stock market. The S&P 500 hit an all time high on September 20th. Google search volumes for “stock market” and “Dow Jones” that week were some of the lowest of 2018.
  • Last week’s drop has reinvigorated their interest. Wednesday’s decline essentially doubled the number of market-related searches from the prior week. Thursday’s wild ride saw triple the number of Google searches from the week before.
  • Importantly, last week’s markets-related Google search volume does not appear to have equaled that of February’s decline. The data is still coming in here, but search volumes for the week of October 8 – 15 look to be about half of those from February 4 – 10.

The takeaway: think of Google search volumes as a crowd-sourced version of the CBOE VIX “fear” Index. By this measure, there may be more downside to US stocks since the typical American (and, by extension, retail investor) isn’t yet sufficiently worried about the direction of US stocks.

See the data here: https://trends.google.com/trends/explore?geo=US&q=Stock%20market,dow%20jones

#2. Fidelity Investments retail order flow. Even the smallest investor who uses Fidelity can see a daily real-time summary of which securities are generating the most buy and sell orders. We keep an account at the firm expressly to see this information, and we suspect every high frequency trading shop does as well.

Here is a summary of Friday’s order flow, when the S&P 500 swung 45 points intraday but ultimately ended the day +1.4%:

  • Total order flow was slightly higher than a typical day, but lower than February’s selloff.
  • 63% of Fidelity retail order flow was to the buy side on Friday. In our experience, this percentage is typically 51-55% buy orders, so Friday’s activity was a sign that “buy the dip” is still in play. (All the data presented here is for the 30 most-heavily traded names.)
  • Most of the order flow was single-stock trading, not ETFs, showing that it was active retail traders playing Friday’s rebound.
  • The large cap names with the highest percentage of buy orders: Ford (75%), AT&T (74%), Amazon (71%, and the single most traded name), Square (69%), JP Morgan (68%), and Microsoft/Bank of America (67%). There were no large cap names with less than a 55% buy order percentage.
  • One notable point: marijuana stocks are very popular among Fidelity’s retail clients. On Friday they were buyers of Medmen (72% buy orders) and Canopy (56%), but sellers of Tilray (46% buys) and India Globalization (49% buys).

The takeaway: retail traders walk into Monday morning with a long bias.

Summary of these 2 points: retail investors nibbled at stocks on Friday, but the Google Trends data shows we aren’t yet at similar levels of fear as the February selloff. If US stocks do not continue to rally on Monday/Tuesday, look for retail to be net sellers early in the day.

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