In a normal year, sports fans would be gearing up for the NBA playoffs at the end of May. This spring, with no live competition, some are searching for thrills in the stock market.
U.S. brokerage firms have seen a flood of retail trading activity in recent months. Analysts say a lack of pro sports-betting and casinos, more time to watch the markets, as well as stimulus checks have added to the day-trading trend during the pandemic.
Dave Portnoy, founder and CEO of Barstool Sports, said he dipped into the market to get a sense of competition, and fill the void while pro games were on hold. Portnoy had a dormant E-Trade account with roughly $50 in it. But he began investing hundreds of thousands of dollars in names like Boeing and Alibaba when shutdowns kicked in.
“It’s the combination of no sports — so you can’t bet on that — and you can’t go outside. There’s a lot of people sitting in front of their computers who ordinarily can’t be day trading,” Portnoy told CNBC in a phone interview. “For a gambler, investing has a ton of similarities.”
Sports gamblers looking for a thrill could be in for a rude awakening: Investing is not gambling. Historically, day traders tend to lose money. Even most professional investors can’t beat a simple low-cost index fund tracking the market over time.
The most popular stocks among retail investors over the past few months, aside from Disney, have been volatile low-priced names – “the sort of names that can move +10% in a few days,” according to research firm DataTrek.
Robintrack, a third-party website that monitors top stocks on popular trading start-up Robinhood, shows Ford and General Electric as the most bought names on that platform. Aurora Cannabis, Delta Air Lines, Carnival, and GoPro were among the top ten.
Participation in these stocks is up roughly 120% in just the last two months, according to DataTrek. GoPro, a stock which trades at $4, has seen a more than 50% increase in holdings since March 1, while holdings of GE and Ford have roughly doubled.
“The rush of retail investors into U.S. equities is at least partly a function of a world with no casinos, no sports betting to speak of, and little to do outside the home,” DataTrek co-founder Nick Colas said. “The dopamine rush of a full house is the same as holding a hat-sized stock into an up 3% open on the S&P.”
Chris Larkin, managing director of trading and investing products at E-Trade said investors are buying names like GE, and may see opportunity in it as a dividend payer. Ford was also a retail favorite as major automakers bring workers back to plants. They also saw opportunity in biotech.
“Traders seemingly bought the rumor of vaccination hopes and sold the news of disappointing trial results — names like GILD and REGN saw heavy selling activity thus far in May,” Larkin said.
Rise in retail
Even before the stay-at-home orders, retail investing had taken off at an historic pace thanks to commissions dropping to zero. Fractional trading, which lets you buy parts of an expensive stock for as little as $1, also made investing more accessible. Charles Schwab saw a 58% increase in new accounts year over year, while TD Ameritrade and ETrade saw 149% and 169% jumps, respectively.
Robinhood, whose core demographic is millennials, saw first-quarter net deposits rise their month average from the last quarter of 2019. Daily trading volume in the first quarter was three times what it was in the last quarter of 2019, according to the company.
“Commission costs have fallen dramatically; to zero is come cases. Investing is now cheaper and easier than ever before,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab. “Following a nearly 12-year long bull market, the recent bear market has provided the first real buying opportunity that many young investors have ever seen.”
More time, more stimulus
Casinos began shutting their doors to comply with Federal guidelines. Those closures may have been another factor for some to turn to stocks. DataTrek used a 90-day chart of Google search volumes for “buy stock” versus “casino.” The spike in “casino” was around the period where every U.S. gambling house closed, and coincided almost to the day when searches for “buy stock” jumped.
“When one door closed, another one opened,” DataTrek’s Colas said. “You’re going to get your dopamine rush wherever you can.”
JJ Kinahan, chief market strategist at TD Ameritrade, said while lack of pro games may be part of it, the “more common denominator is that people have time.”
“Maybe no sports is playing into this, but the real contributors are time, ability to focus with less distractions and people’s desires to improve their condition,” Kinahan said.
Kinahan said TD Ameritrade has seen a jump in investor education. Clients spent time on learning stock fundamentals, with investor visits to the firm’s education center up more than 280% from a year ago.
Stimulus checks may have been another factor in recent boosted trading activity. Stock trading was among the most common uses for U.S. government stimulus checks across almost every income bracket, according to software and data aggregation company Envestnet Yodlee. Those making between $35,000 and $75,000 annually traded stocks about 90% more than the week prior to receiving their stimulus check, according to the firm.
Still, new traders may not invest with the same enthusiasm when the economy, and sports re-open.
A week after professional golf returned with the TaylorMade Driving Relief event, another benefit tournament is taking place Sunday: Tiger Woods and Peyton Manning against Phil Mickelson and Tom Brady. As other sports come back online, Portnoy predicts retail interest will “simmer down.”
“Most people will go back to their prior lives — it takes a lot of time, and a lot of effort, to pay attention all day to the market, I think there will be a natural decline,” Portnoy said. “I won’t be sitting in from my computer, watching the stock market go up and down every second.”
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