No, The Market Is Not Rallying Because Of Robinhood Traders, Barclays Says...

TOPLINE: The flood of latest retail investors making speculative stock trades don't seem to be behind the market’s recent rally, in keeping with new research from Barclays which found that a lot of Robinhood users' top picks cared-for underperform.



Robinhood customers piling into a stock usually resulted in lower returns, Barclays found. 

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KEY FACTS

  • Barclays analyzed Robinhood's customer holdings and compared them to daily market returns and concluded that there is “no clear relationship” between retail investors adding shares and S&P 500 index moves.
  • The research “casts doubt on the thought that retail holdings are the explanation for market returns,” in keeping with Barclays analyst Ryan Preclaw.
  • The idea that new investors using zero-cost brokerage firms like Robinhood were driving up the market has become a well-liked narrative on Wall Street.
  • “Since March 2020 we've got seen the other of the standard wisdom—all else equal, more Robinhood customers getting in stock has corresponded to lower returns, instead of higher,” Preclaw wrote.
  • Barclays’ analysis found that for all the Robinhood investors cashing in on the stock market’s rebound over the past few months, even as many have gotten it wrong and losing money: Overall, Robinhood traders’ top picks are underperforming.
  • Barclays found that there is “a correlational statistics between a change within the number of Robinhood customers holding a stock and therefore the return of that stock.”




CRUCIAL QUOTE

“Just because two things happen at the identical time doesn’t mean one causes the opposite,” Preclaw said. “And while it’s true that a lot of high-return stocks have had a considerable increase in retail ownership, low-return stocks have also had a giant increase.”

KEY BACKGROUND

A wave of recent retail investors piled into zero-cost brokers like Robinhood, Charles Schwab, and TD Ameritrade because the market hit a coronavirus recession low point on March 23. Robinhood, for example, saw a historic 3 million new accounts added on its platform during the primary quarter, as stocks plunged within the fastest market on record. Barclays’ analysis uses data from Robintrack, a separate platform that tracks the quantity of Robinhood users holding a stock over time.

SURPRISING FACT

CNBC anchor Jim Cramer recently speculated that Wall Street veterans may well be buying popular Robinhood stocks early within the day, then flipping them to retail investors at a higher price once the market opens. “It’s a game,” he described.