The net $77.7 billion in equities and ETFs purchased by individuals in the first quarter is near a record
By Jack Pitcher, The Wall Street Journal, April 23, 2023
Individual investors scooped up shares of single stocks and exchange-traded funds at a near-record clip in the first quarter. They appear to have learned some lessons in risk taking as well.
Individuals bought a net $77.7 billion in equities and ETFs on U.S. exchanges in the first three months of the year, according to Vanda Research data, which excludes contributions to 401(k)s and other retirement accounts. That sum trails only the first quarters of 2021 and 2022, when they bought about $80 billion… individuals have continued buying, at about five times the rate this year as in 2017 to 2019. …
Individuals are increasingly favoring diversified ETFs over single stocks, they are trading less actively, and by at least one measure, they are pulling back from the riskier options market. … [end quote]
At the same time, margin debt continued to trend down during the first quarter. Margin debt is highly correlated with the stock market.
The S&P 500 has shaken off concerns about a potential recession and stress in the banking system to trade up 7.7% this year but the average individual investor’s brokerage portfolio is down about 27% from a November 2021 peak.
The stock market is in an up phase of a channel that it has bounced in for the past 6 months. The trade is mildly risk-on. The Fear & Greed Index is in Greed.
The Treasury yield curve is rising slightly out of the rapid flight-to-safety drop caused by the banking crisis a few weeks ago. It has not fully recovered the high yields. Financial stress and VIX are low so there’s no trace of crisis remaining.
The USD, gold, silver, copper and oil appear to be stabilizing. Natgas may have bottomed but it’s too soon to see the trend.
The Federal Reserve’s giant book of assets has slightly declined after the pop from its emergency action to prevent a banking crisis a few weeks ago. They will continue QT which gradually removes demand from the bond market, supporting higher yields for Treasuries and mortgage bonds.
The next FOMC meeting is May 3. The market is almost unanimous in its expectation that they will raise the fed funds rate 0.25% to 5.00% - 5.25%. That’s a big pop in opinion from just a month ago. A significant part of the market thinks the Fed will start cutting the fed funds rate in September 2023 and even more so by December 2023. That is despite the stickiness of inflation and the Fed’s reiterating that they will hold the fed funds rate for an extended period of time.
I think the market is over-optimistic about the Fed cutting rates soon. It wouldn’t be the first time, or even the second time. The market usually responds to disappointment with a hissy fit.
There are no major stories other than next week’s PCE inflation report that are making news.
The METAR for next week is partly sunny.