Markets
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Luke Kawa

Retail traders are forcing institutional investors into their favorite stocks

JPMorgan’s note on retail trading activity is so nice, I have to write about it twice.

In addition to leaving a big mark on how stocks trade on earnings releases, strategists led by Arun Jain also flagged how in meme stock land and beyond, retail traders are basically forcing institutions to play a game of follow-the-leader.

“As an interesting pattern within ‘Meme’ stocks (e.g. Opendoor Technologies), retail buying in prior months is followed by non-retails joining the trade more recently,” they wrote. “This is in line with our reading on the broader market — retail investors benefitted from ‘buying-the-dip’ as we entered the sharp V-shaped recovery post-Liberation Day, while the High Beta rally (which also included Meme stocks) was fueled by non-retail investors catching up via higher beta exposure.”

OPEN retail and non-retail activity

I would also be remiss not to say that retail buying outstrips non-retail buying by a substantial margin, further underscoring the notion that “buyer’s binges” are a more important part of so-called “short squeezes” than investors who bet against the stock actually closing their positions.

However, Jain and co. caution that “as a result, High Beta Crowding is at all-time highs and is likely to experience snapbacks as sentiment sours with policy uncertainty or weak economic data.”

Along these lines, Goldman Sachs strategist John Marshall is telling clients to buy large-cap meme stocks including Palantir Technologies and Advanced Micro Devices(?!?).

In the case of the latter, we’re really stretching the definition of what “meme stock” means. AMD, while trading at about a 40% premium to the Philadelphia Semiconductor Index as a whole, isn’t outrageously valued and has a fairly well-established and successful business model. However, per Goldman, it is a name with elevated retail activity.

The phenomenon of “herding behavior” is well known in nature. It’s just a little surprising to see retail traders being portrayed as the shepherds and professionals as the sheep!

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Powering the positive earnings report was the company’s AI-related revenue, which grew 84% in the fourth quarter and now makes up over a third of total revenue. Investors seem to think the increased demand for servers could have trickle-down effects for other companies.

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Ross Stores surges as Q1 results beat expectations, full-year guidance raised

Ross shares are rising after the company delivered strong Q1 results, with sales topping Wall Street’s projections.

The stock soared 6.3% just after the open.

Key numbers:

  • Earnings per share of $2.02 vs. $1.47 year over year (estimate: $1.72).

  • Sales of $6.01 billion, up 21% year over year (estimate: $5.61 billion).

  • Comparable sales growth of 17% (estimate: 8.58%).

CEO Jim Conroy attributed the results to better traffic in stores. “Customer traffic was the primary driver of the strong sales trend as compelling merchandise assortments, higher customer acquisition and engagement from our ongoing marketing initiatives, and an improved in‑store experience are resonating with shoppers.”

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