The recent surge in the broader markets over the past few weeks has evoked memories of the peak trading mania experienced during the lockdown days of the pandemic. Back in 2020–2021, it seemed like half of my generation (Gen Z) was learning how to invest for the first time. This trend was somewhat
discouraging, as the day trading habits that developed weren’t necessarily conducive to long-term passive investing. However, it did signify an early start in the markets, which is advantageous.
This time around, the dynamics have shifted, with institutional investors rather than Reddit Robinhood retail traders leading the charge.
Market trends of the pandemic days which included the boom in tech stocks, athleisure wear, and at-home equipment, are resurfacing, but with a more grounded long-term approach. Unlike the speculative frenzy of the past fueled by companies on the brink of bankruptcy, the current rally is underpinned by strong fundamentals and companies that have a strong not weak future ahead, signaling different patterns in the markets.
As companies have released their Q4’23 earnings reports over the past few weeks, the tech and banking sector have been leading the charge, driven by increased post-pandemic consumer spending, borrowing, and general optimism about the economy. Despite geopolitical tensions and an upcoming election in November, the overall economic outlook appears positive, bolstered by the Federal Reserve’s ability to manage inflation and tame interest rates.
Post-Pandemic Possibilities
In contrast to the pandemic-driven resurgence of near-bankrupt stocks, investors are now flocking to companies favored by institutional investors.
January 2024 witnessed a surge in speculative trading reminiscent of 2020, but with institutions anchoring their positions in fundamentally sound companies rather than volatile “pump and dump” stocks like GameStop and Bed Bath and Beyond.
Nowadays, notable attention and price surges have been observed in stocks like Abercrombie & Fitch and Texas Roadhouse, as institutional investors pivot towards companies of the like. Whether or not you consider them more or less stable than the ones that were flying in 2020 is up to each individual investor but noticing these trends can be helpful indicators in general.
Despite a financial institution’s traditional long-term approach and stable vision as providers of mutual, target date funds and retirement plans, witnessing an uptick in individual trades is something to watch out for. As large players in the market due to their size (AUM), customers, and sheer power, they can have a big impact on the direction of it.
With roughly 80% of the volume of NYSE trades are made by institutional investors, their shift towards consumer staples, utilities, consumer discretionary, and energy stocks signifies a departure from the speculative trading frenzy of the past.
While retail investors remain active, there has been a moderation in their trading volume lately. Institutional investors, managing mutual funds and 401(k)s, bring a more realistic perspective geared towards fundamentals and safety than a gaming approach. Not at the center of attention this time, observing institutional investors decision making in the markets can be a great learning experience for future day traders.
The surge of institutional investors into certain stocks signals a return to a more measured approach to investing, moving away from the speculative trading patterns observed during the peak pandemic days. Although no one has a crystal ball nor predict the future, learning from different kinds of investors of all shapes and sizes can help one see investing as a long-term strategy instead of a game which can make your life easier down the road.