Retail Resurgence

First off, a huge thanks to all of you who have stuck around for the last 9 volumes of Lootbag. Whether my analysis was on point or complete garbage, I appreciate you taking the time to read my ramblings on the markets. As we kick off volume 10, I'm grateful for your continued readership and support. Keep those emails coming - let me know what's resonating, what's falling flat, and what you'd like to see more or less of. At the end of the day, my goal is to break down the data, dissect individual stocks, and help make sense of the madness unfolding in the financial world. Here's to the next 10 volumes and beyond!

🧠 Bigger Ideas

Wanted to talk about the little guy today. The retail investor.

One of the key factors driving overall market strength and breadth is the participation and sentiment of retail investors. When individual investors are actively engaged and putting money to work in the markets, it can provide a significant boost to trading volumes, liquidity, and demand for various assets.Based on the insights from Robinhood and Coinbase's recent earnings reports, there are clear indications that retail investors are regaining their appetite for trading and investing again. I bet the same could be said for the legacy financial services companies like Fidelity.

The numbers coming out of Robinhood and Coinbase are pretty eye-opening when it comes to retail investor activity. Starting with Robinhood, it's clear the platform's mostly younger user base is getting back into the markets in a big way. Their assets under custody jumped from $87 million in Q3 to $103 million in Q4 - that's millions of dollars flowing back onto their platform to get invested. And customer deposits have started ticking back up too after being flat most of last year, going from $4 billion to $4.6 billion quarter-over-quarter.

It's a pretty similar story at Coinbase on the crypto side. Their Q4 consumer revenue rocketed up 79% from Q3 to $493 million. Sure, some broader economic factors were at play, but they pointed directly to existing users just going absolutely buck wild trading wise. Consumer trading volumes surged 164% to $29 billion!

What do we do with this information?

A significant influx of retail investors could potentially contribute to market frothiness and speculative behavior, especially in sectors or assets perceived as "hot" or trending. This can lead to valuation concerns and potential market corrections if euphoria becomes excessive. Think vehicles like $DJT - the Donald J Trump stock which recently un-spac’d. IPOs like Reddit. These things can start to be concerning or they could be vehicles to ride. Just don’t be there when the music stops.

Whether or not the retail crowd is back - we all seem to be making money and if you aren’t making money in this market or are *gasps* bearish then you gotta rethink your strategy here. Let’s just be happy that people want to participate even if it is at the price level we are at. People always look for a deal when it comes to shopping for clothes, buying groceries, and even booking vacations. But when it comes to buying a stock on the stock market that discount shopper in you just seems to go away for some.

A recent anecdote from a friend:

✍🏽 The Relentless Rally + The Trendline

I think near the start of the year in one of my previous volumes I brought a chart of the historical S&P 500 returns during a presidential cycle and that so far has proven to be a great north star to have followed. If anything we were supposed to dip down in February and then the Ides of March were supposed to arrive to ruin the rally and it didn’t..

It shouldn’t be too much of a surprise even if you aren’t as tied into the market as me as nothing really bad has happened yet. The data has been good, the macroeconomic picture hasn’t broken and if anything GDP numbers continue to confirm that as long as Americans have a job they will spend money. It’s not a matter of if they have the money, (take a look at credit card company stocks) it matters if they have a job. We love consuming, and when we consume the companies produce. Why wouldn’t you want to get cash back on what you buy through some form of shareholder return.

Invest in what you use, invest in what you know.

I suspect Powell isn’t gonna get in-front of this train until after November or unless something unexpected happens and the market knows that.

If we look ahead towards the month ahead and take a step back to see what happened in the past we can see via this tool that April historically has a record of being 52 up years; 22 down years; ave. return = 1.45%. This is now where we should be very interested in what big money does. Why do I say this?

Well let me step back to October. I was doing my regular contributions to my 401k in October last year, I was keeping my monthly deposits in my brokerage account running but I was even a little bit held back so I would say that I didn’t put out all of my dry powder and I should have now looking back. Think about what the environment was like right before the beginning of this absolutely vicious rally. We went from 430 some on the $SPY to $409 and it was looking very bleak if it wasn’t for that V shape recovery. I ask you this question — You just saw 30% rally in the stock market in Q1 of 2024 and let’s say you were sitting out since October. You still didn’t participate after February flipped good and let’s say even March you said “not yet”. Is a 30% rally enough to dip your toes into the market now? Or do you remain stubborn and stay vigilant in your 5% treasury bills & CDs.

CPI is behind us, FOMC has passed, the PCE just released on Good Friday while the market was closed and was surprisingly soft I suspect we gap up slightly tomorrow morning but that is neither here nor there. It’s almost clear waters, all we need for a re-juice or a refuel of this rally is a strong nonfarm payrolls report and we will likely resume the grind up.

🖼️ The Chart Gallery

Charting tools and comprehensive financial data analysis from Koyfin - use link provided to receive 15% off Koyfin Plus

The simultaneous breakouts in the $IPO ETF, Solana, and the $IWM small-cap ETF suggest a renewed enthusiasm among retail investors for riskier assets, potentially driven by economic optimism and accommodative monetary policy speak by many of the Fed governors including Fed chair Jerome Powell. While this resurgence of risk appetite might try to draw you in and let me tell you it has for me , it also underscores the importance of exercising caution and implementing robust risk management strategies to navigate potential market volatility and speculative excesses. None of these are really actionable or tradable vehicles (really) but may serve as a good tracker to track retail investor activity — a.k.a me, you, your friends your family, etc etc.

That’s it. I’m back writing hopefully more consistently and looking forward to continuing to write some sense into this market and convey some alpha forward to you guys. Earnings season is coming right around the corner again like it never even left, Bitcoin is ripping and even the gold bugs are having a moment. Don’t look now but gold hit all time highs recently and so did Bitcoin.. I’ll leave you with a lasting question into the week. Is that a sign of a flight to safety or or is it a sign of risk appetite?

Let’s keep making money 🫡 

📅 Calendar Clues

Curated from: Trading Economics

Tues (4/2): JOLTs Job Openings
Tues (4/2): (4) Fed Governors Speeches (AM/PM)
Wed (4/3): ISM Services PMI
Wed (4/3): Fed Goolsbee & Fed Powell Speeches (AM)
Thurs (4/4): Initial & Continuing Jobless CLaims
Fri (4/5) Nonfarm Payrolls
Fri (4/5) (3) Fed Governors Speeches (AM)