Day Traders Go Big on Blue Chips as Meme Stocks Fad Cools

(Bloomberg) — Retail day traders whose frenetic buying sent stocks like GameStop and AMC Entertainment soaring this year are tilting away from tiny memes in favor of mammoth old blue chips like GM and Microsoft.

That’s one explanation offered by analysts at JPMorgan and VandaTrack for why small-cap stocks have cooled, with the S&P 600 Smallcap Index falling about 5% from a March 12 record. Meanwhile, S&P’s large-cap benchmark advanced almost 4% over the same period to an intraday record on Thursday, with Microsoft Corp., General Motors Co. and Starbucks Corp. setting new highs this week.

VandaTrack posited that older investors with more conservative goals may be picking up some of the recent slack in volume left by younger cohorts.

“Wealthier individuals from the Boomer generation may have been responsible for the ramp-up in purchases,” VandaTrack analyst Giacomo Pierantoni wrote. “The average investors’ age in platforms like Schwab or TD Ameritrade is close to 50, and they’re a lot more wealthy than millennials.”

Pierantoni also pointed to large inflows into sovereign bond and credit ETFs. “While most Robinhooders tend to stay away from ‘boring’ fixed-income products, Boomers, who are closer to retirement, often prefer them to equities,” he said. Pierantoni cited Charles Schwab Corp.’s monthly data that show bond ETFs and mutual funds inflows were more than twice the amount for equities.

JPMorgan strategists similarly suggest individuals may have turned toward large companies over small, citing a recent imbalance of retail orders for ViacomCBS Inc. and GM. Discretionary and communications sectors have seen strong retail volumes, according to analysts led by Peng Cheng. The traders remain active in hot sectors like alternate energy and cryptocurrency, with Nasdaq exchange-traded funds still sparking interest.

A recent survey of more than 1,000 investors from Charles Schwab shows that the newly minted daytraders that arose in 2020 earned less and were harder hit financially by the pandemic than more seasoned peers. What’s more, 72% of those new investors surveyed were more focused on buying and holding for the long-term, compared with 56% who were in it for the long-haul last year.

Whatever the cause, smaller stocks have been losing ground, after their rallies and surging volume that lit up the first quarter failed to reignite in April. Empire Financial Research’s Whitney Tilson has been tracking a basket of 25 short-squeeze bubble candidates since late January — including GameStop Corp., AMC Entertainment Holdings Inc. and Express Inc. By his reckoning, they’ve peeled off a staggering $63 billion in value.

“Worse yet, the actual number is surely higher due to leverage and options,” Tilson said via email.

(Updates to add details from an investor survey in seventh paragraph.)

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