The GameStop bubble has come and gone, but the rookie investors who speak Emoji and Reddit may be here to have a huge impact on brokerage firms, as well as traditional investors who need to pay closer attention to where this fast-moving crowd is of smartphone apps works moves next.
"We believe some of the new retail activity will be maintained," a Bank of America analyst team wrote in a report to customers.
The Bank of America team found that the unprecedented surge in brokerage app downloads during the GameStop mania is continuing rapidly this month, even if GameStop trading itself is now forgotten. Credit Suisse data shows that retail's share of total market activity has accelerated in recent months and has now doubled since the beginning of last year.
Given the potential for a new round of stimulus checks this month, another rush of cash could be imminent from these new investors.
Retail has accelerated since the industry-wide decision to cut commissions in fall 2019. Since then, pandemic-triggered market volatility has sometimes brought new investors into the world of stocks for the first time. Work-from-home, stimulus checks and higher personal savings as well as social media platforms like Reddit have only accelerated the boom in retail.
According to SensorTower, an app research company, Robinhood had 3.7 million downloads in January, despite the unpopular decision of the millennial stock trading app to set trading restrictions on a handful of stocks during GameStop's rise. After the GameStop drama in February, downloads are still strong at 1.8 million this month.
Traditional brokers like Charles Schwab and E-Trade have also seen an influx of new customers as well as new entrants like Webull. Download levels significantly exceeded retail participation during the Covid-19 pandemic.
Retail has doubled since last year
Since the beginning of 2020, the share of retail in total activity has almost doubled from 15% to 18% to over 30%, according to Credit Suisse. The graph shows an increase in activity over the past few months.
The Wall Street company estimates the total share of retailers and wholesalers in US trade volume since 2017 using TRF or trade reporting facilities as a proxy for retail investment. It includes retail stores that are routed to market makers, as well as dark pools, which are private trading forums. The vast majority of retail stores (90%) are reported to the facility.
Trade in general has doubled since last year. According to Piper Sandler, around 15 billion shares are traded every day, up from 7 billion last year.
"Double that, with retail accounting for a larger percentage of that double in the market," Piper Sandler analyst Richard Repetto told CNBC earlier this week.
Retail investors were specifically interested in options trading, a more sophisticated type of stock trading. According to Piper Sandler, the largest e-brokers traded 32.7 million contracts on all stock options exchanges in December. 39.8 million contracts were traded daily in January.
Out of GameStop mania, a phenomenon affecting brokerage firms and traditional investors, a new, younger, social media-savvy cohort has stepped into the fray.
The posts on Reddit's WallStreetBets page have grown over the past month, as have accounts on Robinhood, according to social media analytics platforms ListenFirst and SimilarWeb. With the number of calls on WallStreetBets growing over 800,000 per day, Robinhood's daily downloads were over 400,000 per day.
These accounts, as well as the accounts of E-Trade and TD Ameritrade, were mostly investors between the ages of 18 and 34, according to Bank of America.
"This is important because not only private investors, but also young private investors can increasingly be a driving force in the markets," it says in the banknote.
While social media usage and retailing have calmed down this week, both are still up, which "might suggest some of that higher interest remains as investors look for the next brief press and new investors into the Fight to be drawn, "stated the Bank of America report.
Stimulus controls along the way
House spokeswoman Nancy Pelosi expects Democrats to approve their next coronavirus aid package before the end of February. While direct payment quotas are still under discussion, another round of stimulus checks could mean more liquidity for home traders.
"Based on previous activity related to stimulus checks, we would expect a further increase in retail participation with another stimulus payment," said Bank of America.
In April last year, when the US government passed the largest stimulus bill in our country's history to allow people to keep paying their bills during the forced economic shutdown, some consumers put that money on the stock market.
According to Envestnet Yodlee, a software and data aggregation company, trading securities was one of the most common uses for government business reviews in nearly every income bracket.
Most analysts attribute the flood of new investors to the attractiveness of the market comeback, lack of sports, work-from-home trends, and stimulus money. The personal savings rate hit an all-time high in April 2020, exhibiting a "forced saving" phenomenon that helped boost retail sales.
"We expect retail activity to continue spurting with another round of economic activity, although the level will likely depend on the type of economy (broad-based or focused), market backdrop, and possible regulatory changes that will be discussed in the coming weeks," said the Bank of America.
Watch out or get burned?
As the retail presence grows, it could be beneficial to know the types of stocks that individual investors are happy to buy and sell.
For example, there were top stocks last week. Cannabis companies picked up earlier in the week as Reddit talks about the weed companies increased. The group returned to Earth on Thursday, but the fluctuations in stock prices were not small.
While Apple and Tesla are typically the largest stocks bought by retail investors, according to Apex Clearing, Credit Suisse notes that retailing has focused on small and mid-cap stocks over the past 12 months.
This adds up as retailers were some of the first to buy into the small, rundown stocks during the coronavirus market.
Retail investors gave Wall Street pros a run for their money during the market comeback in March last year, with amateurs' top picks outperforming hedge funds, according to Goldman Sachs.
Small investors also got into the sharply shortened small-cap stocks like GameStop and AMC Entertainment. That alertness could even make institutions think twice about the stocks they are short selling, avoiding names that have a very high percentage of the float tied up in the short term.
Retail investors, especially younger ones, prefer cryptocurrencies, Bank of America told customers.
"With the rise in retail sales since late January 2021, we're finding that social media conversations about stocks have slowed in recent days while interest in crypto continues to grow," Bank of America told customers.
Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.
– with reports from Nate Rattner and Michael Bloom of CNBC.