Mom and pop are on epic stock-buying spree

Trend is creating flashbacks to internet frenzy in late 1990s

Small investors are back. In a big way. Their fingerprints are on Apple Inc’s staggering rally. They piled into Tesla Inc as it tripled, and turned speculative flyers like Virgin Galactic Holdings Inc into some of the most heavily traded shares in the country. Why the enthusiasm? Some see a link to decisions by brokerages to cut commissions on trades to nothing.

While it’s tough to know what’s causing what — bull markets are fuelled by new converts but also lure them — trading volume at online and discount brokers has exploded.

“When you take a bull market and juice it with zero commission trading, we can expect it to generate interest among retail accounts. That, it did,” said Jason Goepfert, president of Sundial. “Retail traders have become manic.”

Individual investors were seen as indifferent participants for much of the 11-year bull market. No more. The latest leg of their emergence times closely with October, when E*Trade, Charles Schwab and TD Ameritrade slashed commission fees to zero. Not that it’s firm proof of anything, but since the start of that month, the S&P 500 is up 12 per cent and the Nasdaq 100 has surged 22 per cent.

Conversations with a handful of clients found lots of praise for zero-commission trades but mostly conservative purchases — index funds and blue chips.

‘New world’

It’s “a new world in discount brokerage where price no longer clouds the comparison for trades,” Steve Boyle, interim president and chief executive officer of TD Ameritrade said in an earnings statement

US households are turning more optimistic on the stock market. According to the latest sentiment reading from the Conference Board, the share of respondents expecting stocks to rise in the next year advanced to 43.1 per cent in January, the highest since October 2018.

For Peter Cecchini, chief global market strategist at Cantor Fitzgerald LP, affection among retail investors for both tech stocks and loss-making companies is creating flashbacks to the internet frenzy in late 1990s.

“There’s sometimes no fundamental reason for it. It just is based on perception — a perception based on narratives that run only an inch deep,” he said in note. “Let’s see how much longer it persists. This kind of activity often unwinds much faster than the wind up.”