The meme-stock mania that rocked the US stock market is fading.
Legions of retail traders pushed shares of cinema chain AMC Entertainment and GameStop, the video-game retailer, into the stratosphere. But there are signs that army isn’t as big as it used to be: The average number of daily comments this month on Reddit’s WallStreetBets forum, a hothouse for trading tips and memes, is about half what it was in November 2020, according to alternative-data provider Quiver Quantitative. Meanwhile, the number of active users and funded accounts on Robinhood, the brokerage that’s become synonymous with the retail-trading boom, dipped in the third quarter.
Retail trading has been gaining momentum since late 2019, as trading apps proliferated and a price war between brokerages stomped out commissions. That surge got a boost as Covid-19 spread. Lockdowns came into force in many countries, and some people had time and extra money on their hands. Sports betting dried up, but stocks and crypto markets were still available. Some wondered if the equity market’s swoon at the onset of the pandemic was a chance to buy shares on the cheap.
Why is Robinhood stock going down?
That momentum may be waning, at least for now. Robinhood CFO Jason Warnick said retail trading tends to be softer in the third quarter. Scores of people signed up for brokerage accounts during the GameStop saga, in which retail traders banded together to bet against hedge funds, and that kind of thing can’t be expected to take place every month. Brokers tend to make less money from transactions when volatility, or price swings, declines.”We don’t expect our growth to be linear,” Warnick said in a call with analysts this week. “It should ebb and flow with market conditions.”
That said, there are indications that retail trading may have plateaued at a new, higher level than before the pandemic. The average daily trading at brokerage Charles Schwab (which finished its acquisition of TD Ameritrade in October 2020) this month is 9% higher than a year ago and is up more than 200% from October 2019, according to data compiled by Nasdaq. (Robinhood doesn’t regularly disclose these figures.)
The drop-off in meme mania seems to have hit Robinhood harder than its peers. The company’s shares have fallen 13% during the past five days, after reporting that crypto trading dropped during the third-quarter and user assets declined. By contrast, shares of Schwab, which reported an increase in active brokerage accounts during the most recent quarter, fell 2% during that span and the stock of crypto exchange Coinbase declined 3%. That all suggests that while Robinhood is seen as a key force behind the rise in retail trading, some of its rivals have also been beneficiaries from that shift.