The stock-market impact of millennial investors has been overblown as trading volumes decline — and it's actually the older crowd who's exerted more influence, JPMorgan says
Reuters / Lucas Jackson
- Older retail investors were "partly responsible" for the market's price swings through October and November, while younger traders played "a rather modest role," JPMorgan strategists said Tuesday.
- While the younger group tends to invest in individual stocks and options, the older cohort more often uses funds to invest.
- Older investors have been selling equity funds and buying bond funds through most of 2020, acting as a drag on the stock market, the bank said.
- Retail investors' trading volumes fell from roughly 23% of all market volume in June to just 16% in September. The decline "raises questions about the narrative" that retail investors were behind the market's summer rally, JPMorgan said.
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Millennial investors made headlines over the summer, but older investors were a bigger part of driving the market's recent swings, JPMorgan strategists said Tuesday.
A surge in retail-investor trading activity coincided with stocks' climb to record highs in September, leading Wall Street to wonder whether individual traders were a new market driver. First-time millennial and Generation Z investors garnered attention for risky day-trading habits and interest in highly volatile stocks.
But while Wall Street legends including Leon Cooperman and Warren Buffett cautioned younger investors against high-risk plays, older retail traders played a bigger role in the market's recent turbulence, according to JPMorgan.
The older group has been selling equity funds and buying bonds throughout the year and acting as a drag on the equity market, strategists led by Nikolaos Panigirtzoglou said in a note to clients. In turn, the cohort was "partly responsible" for the correction in October and the bounce-back in November, they said.
Younger investors, who tend to invest directly in individual stocks and options more than funds, appear to have played "a rather modest role" in steering the market, the team added. New York Stock Exchange margin-account data showed buying of nearly $30 billion in September, down from $40 billion in August, suggesting younger investors "played little role" in that month's correction, the strategists said.
While NYSE margin-account data for October hasn't been published, small call-option flows point to a similarly modest impact of younger traders over the past two months, they added.
Falling trading volumes detract from claims that retail investors have taken over the market. Trading volume at retail brokerages surged over the summer as people rushed to profit from economic reopenings and the market's rapid ascent. Trades made through Robinhood, E-Trade, Charles Schwab, and TD Ameritrade accounted for a record high 23% of all US equity market volume in June. But that share fell to 16% in September, landing just above pre-pandemic levels.
JPMorgan
The sharp decline in retail trading through the third quarter "raises questions about the narrative that US retail investors' buying of individual stocks has been the main driver of the broader equity market rally this year," JPMorgan said.
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