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Markets Update: January’s Record Inflows and Retail Trading Boom


Scott Rubner of Goldman Sachs' Global Markets Division recaps historic inflows into global equities in January and talks about the ongoing retail trading phenomenon and what it means for markets.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Well them towards Davies Goldman Sachs Markets Update for Friday January? Twenty? Ninth goodness on Thursday January twenty eight and each week we check him with leaders across the firm to get a quick taken, what watching in markets on Jake Seaward, global head of corporate communications. Here, the firm and today were joined again by Scott Remnant of global markets division to talk about inflows, we seemed the global equity markets. This January Skype last year, back in November, and made a rather prescient call on the present and importance of retail investors in the market? Scott welcome back to the programme for having me Jake. So scared I mention that on our last pod gas, just a couple months ago, you talked about the fact. the retail investors, were real structural force in the market, and you said here to stay well January, certainly seen a lot of proof of that theorem. What exactly has been happening right?
Treating activity has been the largest story in the market place this year period. So let's get a few stats straight. Turning to the Federal Reserve Board houses, its own thirty, six percent of the fifty seven trillion: U S: equity market, while hedge funds just zone, three percent Rita only twelve times more market cap, then hedge funds do now the most active owner of the equity market has become the most active trader We have not seen that since ninety ninety nine and we have a basket of GS, retail trading favorites. It's something follow every day. This is the stock positions would show up most often on twitter. The trading and the message boards this basket is up. Thirteen percent year to date, it's up now the percent last year and one hundred and seventy percent of the March lows activity has and through the roof daily
average revenue, trades or darts, which The common metric to use retail trading activity hit a record of fifteen million trades per day in twenty twenty one right tell single stock trades, represent twenty five percent of the overall market volume compared to just ten percent. In twenty nineteen and small options, that's fifty contracts or less now make up. ten percent of the total options market- and you know you mentioned, there's been a high. a correlation between or retail trading favorites and our most short basket. The most short basket has outperform the ESA ninety five hundred by over fifty percent in the last ten weeks and that's the largest move since we started tracking the data and two thousand eight, so bottom line red. El activity remains robust, Phil
had been pretty interesting during January inflows in global equities than setting records characterized. What you ve seen in the equity markets during the first few weeks of the year January, has been incredibly eventful and markets. The idea of roaring: twenties has gained steam as investors look past the pandemic for strong, second half recovery to global growth. There is a new regime shift in the markets, new investors returned back into the equity market at levels not seen since ninety. Ninety nine, how active have the markets been? Let's just say Look at yesterday, for example, here in the: U S, twenty three point: six billion shares traded across all you. exchanges yesterday for eight hundred eighty billion dollars worth of notional exposure. This is the largest cash volume day ever. This is fifteen and higher than the prior record of twenty billion shares said in October,
two thousand eight and four options: also the same fifty's Seven million option contracts traded in the? U S! Yesterday: was a larders option volume day in history, and specifically, let's look at the calls. A wreck thirty, seven million calls traded in the U S yesterday and they get this seven. out of the ten warders call option days in history happens so far in January, that's data going back. Nineteen. Ninety two seven thousand observations and the VIC spiked sixty percent higher yesterday, the third Lord one day increase in history and that's what the pics going back to ninety ninety, our g most rolling short basket outperformed the hedge funds IP long by thirteen percent. Yesterday, it was a large one day move since twenty twelve and the spread between these two
baskets- is now fifty five percent on the year. So, where are we global equity mark cap is now one hundred and eight trillion, which is in increase of five trillion so far, and twenty twenty one and the Essen p five hundred clothes Monday at an all time high and there's been a competition for dip alpha, that's who can buy the dip the fastest? What think about where we are big picture. So since two thousand eight ninety five five percent of inflows have gone into global bonds wall. Just five percent have gone into global equities and recently since March, twenty twenty global bonds have registered, forty two out of the past forty four weeks of inflows and there's a stockpile of money markets worth one trillion dollars, and that is getting unwound brick by brick, so in flows into star in January, has been the core theme
That's a lot of activity. What's been driving the inflows in the optimism and how much is the virus and potential new strains? Are variants deliberate of an overhanging on the market? investors are euphoric and looking forward to the second half of the year. Let's take a step back for a second gs. Financial conditions index, is the most accommodative since we started tracking the data in nineteen, eighty nine and the Feds bell She last week rose to a new high of seven point. Four trillion, which is an increase of four point one trillion from a year ago and the? U S M to money supply expanded by three hundred and sixty nine billion last week, the most since March and the year over year. Growth is now twenty six percent, but there has been indication for now that individuals are interested in
boosting savings any further from here? So looking at the three month, change and Google searches there's been lit. interest in further move back into money. Market flows so where we are and equity market is prime for rotation. So, when you run in November, you talked about the January effect. What have we seen in terms of the January effect inflows that you mentioned back, then that's right, Jake the January affect inflows, was the biggest source of demand in the equity market so far in twenty twenty one, the core theme of flows, have been saying flows over prose and I've read a lot about this year, but the simple premise: gear in the environment and twenty twenty one is flows matter more than fundamentals. So let me give you a few stats. Global equities have two hundred and fifty five billion worth of inflows. In the past three months, this the largest three month period. Worth
inflows on record in January, global equities, lots sixty billion worth of inflows in just the three weeks, which includes a few holidays. So this is above what we forecasted and the move into stocks Israel. So, January is the largest months of the year, as I mentioned last time, where thirty seven percent of the early allocations take place in January as a result of rebalancing for one cape portfolios. So what finally, seeing this in the market, the most important dynamic, has been tracking where the new capital is flowing, and there is a clear roadmap and going on with investor preferences. Let me name a few: its value over growth small cap over large gap over Dm Non dollar over the Essen P, sickle goals over defensive and maybe the most unusual shift of them all active over passive.
So expand a little bit on active shift. I mean we four years, Jesse All the new money are all the more money, but the vast majority of money going into passive product. So what's wrong, in this change of investor sentiment: you're right jack. This is welcome shift in investor references back into the markets- and there is a clear preference of active stocks selection. So let's take a big step for a second, there has been a one trillion dollar shift out of active into passive over the past year and two point: three trillion dollar shift over the past five years out of active and got this Jake over the past decade. There has been three point two trillion dollars worth of inflows into passive and three one trillion dollars worth of out flows from active. Fifty percent of global equity assets under management is now passive and that's up from just twenty eight percent in twenty ten so forever
one dollar out of active and into passive over Decades, you might be saying: what's the catch, so this passive shift has large in Ex implications, its typically along momentum strategy, which benefits the largest cap with the largest weights and the highest stock prices. Think Fang. Here's a quick example. for every one dollar worth of in flows into the ESA. Ninety five hundred tracker fund, twenty three cents goes into the top five tech mega caps and forever, one dollar worth of inflows into the NASDAQ one hundred forty I've sense go into the top five. This has helped put a decade, long trade that has been difficult to me. I urge the index returns each year and when I look at small caps, for example, the weighting of: U S small camps in the? U S market is that of forty two year low. But twenty Twenty one is different. We ve started
see this dynamic change back with a desire for act. stock selection. If you want example, arc investments which manages active atm I have seen the second largest inflows year to date, after vanguard with five billion dollars worth of in those year to date and twenty six billion dollars worth of inflows since March, so active eighty have been a major source of investor preferences for high beta high flying single stock selection, rather than the Essen P, five hundred tracking funds. What happens if the newly minted retail investor forces flows out of passive into active with a heavy pivot to vote, you! This is something I've been tracking, so I've been busy busy active January, what he heard from clients in terms of sentiment, imposition going into February,
Clients have become a bit worried of market correction in February and we have started to speak to investors about hedging alternatives and it's really fun based on three key elements. Investors have been looking to hedge, a consolidation in February, and the core thesis is what happens if Foma and YOLO turns into oh now, and it's really out the rate of change John Liquidity. So be worry, is historically a tricky month for markets? Most investors worry bout may but February reads a weaker monthly seasonal than May going back to nineteen twenty eight, with an average return of actually down eleven basis points and the January Effective, done and dusted, as we close out months so February sees inflows, slowed down by forty percent when compared to January, and
Core element. Here is margin. Debt has increased substantially in the markets. According to fin raw margin, debt increase by eighteen percent in November and December to a record seven hundred and seventy eight billion so from March of last year, bargain debt has increased by sixty two percent and that's an increase of three hundred billion in nine months, and there have been only for other times. Such euphoria has happened, which is August of ninety seven July of eighty three march of two thousand and June of two thousand seven. So these have been pretty important days in history, self bottom line: Wall Q- one is still optimistic for most investors, we think a large element of the move has been made and it made sense to add some hedges here. Our rights
worlds of fascinating down to be watched in that market. Thanks for joining us today and sharing your insides thanks for having me jack that concludes this episode of exchanges at Goldman Sachs thanks for listening and if you joined the show, we hope you subscribe on Apple podcasts and leave a rating or a comment, and in case you miss check out or other episode this week with Pierre Dream, had enough Paris offers on the economic environment in France for both small businesses and big corporations. This podcast was accord on Thursday. Janet twenty eight in the year, two thousand twenty one. Thanks for listening all price references and market forecasts correspond to the date of this recording. This podcast should not be copied distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to listen
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Transcript generated on 2021-07-01.