I think the topic I am going to outline is very interesting, exceptional, and dangerous at the same time. Before I present to you the story and conclusions I'd like to disclose that I am not holding shares of any of the United States listed companies and I am not shorting the US stock market either. These are only my observations and I'd like to highlight potential risks associated with this extraordinary phenomenon. The phenomenon called a retail traders orgy.

Perhaps, every market watcher, trader, investor, or Donald Trump Twitter feed follower already know that the S&P 500 has crossed 3,000 points level while the Dow Jons Industrial Average has crossed 25,000 points for the fourth time over the last two years. Many of you are aware that the disconnect between the real economy and the stock market is historic and never seen before. The stock market is not the economy and has not been for at least 11 years. Nevermind. The most important here is a historic rush of retail (small) investors into the US stock market while Wall Street getting more and more pessimistic. Interesting, ain't it? Let's start with the latter one, the big (some says smart) money.

A couple of days ago the Bank of America released results of its monthly Fund Manager Survey in which 223 fund managers with $651 billion Assets Under Management (AUM) were polled. By looking into the survey we can get some information about the market sentiment among financial professionals. The following graph shows answers on questions asking what kind of economic recovery do they expect and what do they think about the US stock market.
It might be surprising but only 10% of them expect a V-shaped (sharp) economic recovery, 25% see a new bull market in the US stocks currently going on. In contrast, 75% expect a U or W-shaped recovery. In other words, slower than an immediate bounce. 68% said that this is a bear market rally anticipating the market to drop. How to interpret that results? Well, Wall Street is simply bearish. 

When asked about the biggest risks their responses were coronavirus second wave, permanently high unemployment, and European Union break-up. Fair enough.
These answers also seem to translate to their actions. Their cash levels (as a % share of invested assets) are still above 2008-2009 levels and in line with 2015-2016. This of course, may change very quickly. Using Wall Street as a proxy it may justify much smaller volumes in the US stock market lately. Having said that, who is then fuelling this incredible rally? To a higher extent retail traders.

SentimenTrader has collected the data from some brokers showing a significant pick up in retail activities. Below you can see that E-Trade and TD Ameritrade clients have conducted almost 4 million Trades recently. Almost four times more than in 2018 and 2019 on average.
A similar thing happened to Robinhood account owners. The chart shows how many of them are holding major Exchanged Traded Funds (ETFs) - passive funds tracking the performance of the underlying assets such as a stock index.
SPY is tracking the performance of the S&P 500, DIA of the Dow Jones Industrial Average, QQQ of the Nasdaq 100 index, and IWM of the Russell 2000. A dramatic increase in activity can be also seen in other financial instruments such as options, but let's keep things simple.

When we dig further about the topic, we can find an astonishing data from the Envestnet Yodlee survey, reported by CNBC. Yodlee tracked the spending habits of Americans after receiving their checks under the CARES act. According to the act, 150 million Americans were eligible for $1,200 one time payments. As of 11 May the IRS (the Internal Revenue Service )had paid out 128.3 million of them.
The table shows that for example people earning between $35,000 and $75,000 annually traded stocks about 90% more than the week before receiving their stimulus check. 

As it was not enough, Financial Times reported that even Gamblers shifted to the US stock market as many of them cannot bet on professional sport due to global lockdown.

“The lockdowns that have kept billions of people indoors have halted the world’s biggest sporting events — from US basketball and hockey to European football, Indian cricket, and even the summer Olympic Games in Tokyo.”

The chart below shows that three biggest US brokers have added 780,000 new customers in March and April.

March has recorded a three times monthly average of the last two years. Impressive.

It looks like, the global lockdown together with central banks' activities leading by the Federal Reserve and governments' financial support has forced people to invent a new international sport discipline - the United States stocks trading. The biggest bet currently undertaking or the best horse in the race is the Fed. Not without reason the most popular saying among investors and traders is "Don't fight the Fed". Nobody has to tell you how it is going to end. The following chart depicts one of the examples. 
Hertz is a US car rental company operating worldwide. On May 23, Financial Times reported that the company had filed for bankruptcy:

"The Florida-based company said its US and Canadian subsidiaries had filed for Chapter 11 bankruptcy after it failed to meet a payment deadline agreed with its lenders. Hertz had already missed a payment earlier last month but its lenders had agreed to postpone the payment to Friday."

As a result, the company's shares plummeted more than 50% (pink line). Meanwhile, retail traders using Robinhood decided that it is a buying opportunity and they have rapidly increased the company's holdings (green line). Unsurprisingly, the stock has fallen even further, below $1.

This is how FOMO ("Fear of missing out") or TINA ("There is no alternative") ends. Manage your risk wisely. 

Best wishes and stay safe everyone.

Seb.

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