Consumers pull back while investors churn
In February, we saw that retail investors were busy trading stocks. Activity in the major retail-facing brokers had exploded, which had negative implications since it suggested a "get me in while the getting is good" kind of mentality.
It's difficult to rely on this data any longer since the brokers moved to free commissions. But just-released data shows that not only did investors pare back during the decline, but they doubled down - literally. Activity in March was more than double what it was just a few months prior.
In releasing the Q1 results, E-Trade notes that:
"The first quarter was truly extraordinary, as the global pandemic altered the dynamics of how we live and work, while rocking the financial markets—propelling volatility and testing multi-year lows across asset classes. We shattered customer activity records and generated unprecedented organic growth—January, February, and March represented our three highest individual trading months ever. In fact, the 42 highest trading days on record were all realized during the first quarter."
Aggregating the Daily Average Revenue Trades (DARTs) for E-Trade, TD Ameritrade, and Schwab, we can see that the explosion in activity that was no doubt triggered by free commissions continued unabated as the pandemic unfolded.
Even so, overall volume on the NYSE jumped in March as well, so retail activity actually dropped relative to the total. Maybe that's a good sign, but it's hard to tell from the data because there aren't really any precedents for this kind of activity.
According to what they're saying, anyway, investors (and by extension, consumers), have pared back their expectations for stocks. In February, we saw that consumers had never been more confident about a continuing rally. Over the past two months, they've reduced those expectations quite a lot.
Other times they reduced expectations so much, so quickly, were a good sign for stocks, though those all came during the past decade of rising prices.
Even with the drop in expectations, there are still more consumers who are at least 75% confident in stocks rising than those who are 25% or less confident.
This is a far cry from the bottoms of the 2002 and 2008 bear markets when there were many more consumers who were apprehensive than confident. Even in 2015-16, consumers were more apprehensive than they are now.
A decline in stocks takes time to filter down through to general consumers, so it's not a big shock that the survey hasn't shown enough of a decline to be outright pessimistic. From a contrary standpoint, though, it would be a much better sign had it declined more than it has. So far, it's not enough to consider it a positive going forward.