Retail investors top Wall Street pros as stock market recovers from coronavirus selloff
Main Street investors were quick to buy heavily beaten down airlines and cruise operators
Retail investors have outwitted Wall Street as the stock market has come roaring back from its COVID-19-induced selloff.
A basket of stocks popular among Main Street investors has gained 61 percent since the stock-market bottom, outperforming the 45 percent gain of hedge fund and mutual fund favorites, according to Goldman Sachs. All have outperformed the benchmark S&P 500’s 36 percent advance.
“The surge in retail trading activity has amplified the market rotation toward cyclicals and value stocks,” wrote a team of Goldman Sachs strategists led by U.S. equity chief David Kostin.
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Stay-at-home orders aimed at slowing the spread of COVID-19 brought the U.S. economy to a screeching halt, inducing the sharpest economic slowdown of the postwar era and a 34 percent plunge in the S&P 500 from Feb. 19 through March 23.
As the dust settled from the selloff, value-seeking retail investors rushed into cyclicals, small caps and economically sensitive names that had lagged high-quality growth stocks during the market decline.
Airlines, cruise operators and other names severely impacted by COVID-19 were among the favorites of retail investors at online broker TD Ameritrade, according to data provided by the company.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| AAL | AMERICAN AIRLINES GROUP INC. | 14.52 | -0.12 | -0.82% |
| CCL.DIS | NO DATA AVAILABLE | - | - | - |
“We are looking at account openings, and what we're seeing is people are skewing younger and they're seeing opportunity that I think a lot of professional traders miss,” JJ Kinahan, chief strategist at TD Ameritrade, told FOX Business.
Online brokers slashed commissions to zero last fall, leading to a wave of account openings. The decision also put mom-and-pop investors and professionals on a “more level playing field,” according to Kinahan.
Zero commissions allow the retail investor to “do what's best for the individual trade rather than always be concerned about the cost of the trip,” Kinahan said.
Investors on both Main Street and Wall Street looking for value still have opportunity in this market as the gap between the highest and lowest valuation stocks ranks in the 93rd percentile since 1980, according to Kostin.
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“Wide dispersion signals long-term opportunity for value investors,” Kostin wrote. “However, the volatile rotations in recent weeks underscore just how difficult that opportunity can be.”