Thursday, June 11, 2020

Well, that's reassuring

Pretty much everyone with an econ background I talk to or follow has been perplexed by the speed with which the stock market has shot up despite large sectors of the economy having no perceivable plan for getting back to pre-pandemic levels. 

I'm not sure "day traders" is the answer we were hoping for.

Everywhere You Look Under Surging Stocks Is Fervid Retail Buying
By Sarah Ponczek

Companies that have been soaring are in many cases the same firms that have seen skyrocketing interest at brokerages popular with individual investors. Turnover is surging: average daily volume for these stocks has occasionally been 30 times what it was in 2019.

Their favorites list includes Norwegian Cruise Line Holdings Ltd., American Airlines Group Inc., United Airlines Holdings Inc., and Carnival Corp. The 10 Russell 3000 stocks that have seen their popularity rise the most over the last month on the Robinhood investing app, according to website Robintrack, are up an average of 93% since early May -- nine times the S&P 500’s return.

Conversely, six of the S&P 500’s 10 best performing stocks over the last month appear on a list of companies that have seen the biggest pickup in interest among users of Robinhood. On the surface of one particularly baffling phenomenon -- firms whose shares are surging despite having filed for bankruptcy -- the fingerprints of retail investors are everywhere.

American Airlines, for example, has seen an average 101 million shares change hands each day over the last month -- 23 times what was normal last year. The airline has 423 million shares outstanding, of which 417 million float -- meaning those that are available to the public. Loosely put, that means every American Airlines share publicly available is traded every four days. (Since it’s likely that many of these shares are held for longer periods by institutions, a smaller -- but still sizable -- pool of the company’s stock is trading even more frequently.)

Norwegian Cruise Lines, up more than 100% in the last month, has seen its average daily volume balloon to 73 million -- 37 times the 2019 norm. With 254 million shares in the firm’s equity float, hypothetically every share could be traded in less than four days.

“There’s a very well documented tendency for investors to buy ‘lottery tickets’,” said Jason Thomas, chief economist at AssetMark. “If you’re looking for a huge return in the near-term, a huge bump, you’re not going to go buy a consumer staples company. You’re going to buy something that is either a biotech where it’s basically an option, a binary kind of a thing, or just pick whatever has been hit the hardest.”

1 comment:

  1. What's there to invest in? Your only choice is to buy stocks.