Harkens Shift back to normal in the retail age

It was beach season

In mid-June, Draftkings CEO Jason Robins may have surprised some viewers with his candid commentary on the sports game industry during an interview on CNBC. Draftking’s biggest contender over the next few months isn’t Fanduel or Penn National, it’s “going to the beach this summer”.

This may sound like a concise commentary, but it is not to be taken lightly as it was a real risk. And although the beach season is now over, bringing speculators back to playing venues for the fall and football season, the sentiment points to a risk for the financial markets too.

When the coronavirus pandemic brought the sports industry to its knees in the spring of 2020 – an industry in America that made $ 1.5 billion in revenue a year before the pandemic – it created a wave of cash and speculative appetite who needed an outlet. Coupled with tax relief efforts in the form of paycheck programs for businesses and individuals, the US economy was teeming with excess capital.

Understandably, closed U.S. professional sports leagues have demanded a new outlet for speculative appetite, and of course, surveys show that among people who received unemployment benefits during the pandemic, 20% of those funds were turned over. circulation in the American financial markets.

Where is the money going?

The coronavirus pandemic has clearly brought a wave of new retail traders to financial markets. The increase in account openings in 2020 continued into 2021: US brokers like Robinhood, TD Ameritrade, Charles Schwab and Interactive Brokers added more than 2 million users in each of the first and second quarters of 2021 .

In fact, Robinhood added over a million users in January 2021 alone thanks to soaring stocks of memes like video game retailer GameStop (Ticker: $ GME) and movie channel AMC (Ticker: $ AMC).

Amid the surge in interest from retail traders, something else was happening in recent months: America’s professional sports leagues were starting to open up. to the public once again. And with the return of professional sport live this fall, the interest of retail traders could be elsewhere than in the financial markets.

Chart 1: US Retail Money Fund: June 2011 to June 2021

While the US sports betting industry managed to make a profit of $ 3 billion in 2020 – a pretty significant jump from the $ 1.5 billion profit in 2019 – it meant more people were deploying their capital outside financial markets.

In fact, in the past year, retail silver funds have fallen by about $ 100 billion, according to data pulled from the St. Louis Federal Reserve Database. Early indications from Q3 2021 suggest account openings have slowed, perhaps as much as 50%, in line with data that shows retail money funds are now at their lowest since February 2020 – the month before that the US economy does not start to crash.

Retail impulse fading?

With the American stock markets near from all-time highs at the time of writing, decline in retail silver funds suggests speculative fervor has faded; The Americans are deploying their capital elsewhere. If you are asked “where has all the retail business gone?” At first glance, you might say “sports betting”.

But remember what Robins, CEO of DraftKings, said about his company’s biggest competition: “the beach this summer”. There is an argument to be made that this mindset – moving away from the leisure activities of the pandemic era and returning to pre-pandemic life – was felt in American financial markets too, which could continue now that the attention of speculators has shifted from beach season to football season.

Figure 2: US Mobility Index (Apple Maps) versus total volume of individual stock options (2021 YTD)

Harkens Shift back to normal in the retail age

Using an equally weighted model of Apple’s driving and transit data from their mobility data file allows us to construct a simple US mobility index. Indexed at 100 out of January 13, 2020 (the start of the time series made available by Apple), our U.S. Mobility Index suggests Americans are close to +35% ‘more mobile’ (depending on mode of mobility) as of September 13, 2021 than they were prior to the start of the pandemic.

WIt should be noted that while June saw an important Federal Reserve policy meeting followed by the biggest witchcraft day in history (in terms of options contracts traded and total volumes), total call volumes trading actually peaked in February. The point is that with greater mobility within the US economy, there are fewer people participating in financial markets.

An omen, good or bad?

Ultimately, participation in the financial markets, especially for new investors and traders, depends on one thing and only one: opportunity. When does an opportunity present itself in the financial markets? Well, to put it simply … when the going. Simply put: volatility.

Chart 3: GVZ, MOVE, OVX and VIX Daily calendar (2021 YTD)

Harkens Shift back to normal in the retail age

But for a brief spike in March around the Fed meeting, and then again in June (also around the Fed meeting), volatility measures followed a steady downward path for almost three months (and really , since the beginning of the year if you ignore MOVE, Treasury bill volatility).

This adds another layer of intrigue to the retailer mania saga. It’s quite a feedback loop, if you think about it: as the US economy improves, mobility measures should continue to increase; evidence of increasing mobility gives more hope that improvements in the US economy will continue; which in turn reduces investor worries about the future, ultimately driving down volatility expectations.

It stands to reason that if we persist in an environment of lower volatility, which incidentally may be good for a higher steady float in US stock prices, the level of interest of retail traders could also start to decline. blur. After all, people want to go where the action is. And now that summer is over, it’s no longer at the beach, but back on the football field.

— Written by Christopher Vecchio, CFA, Senior Strategist for DailyFX

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