Market Crash Hands Loss to Traders Waging War with Wall Street
(Bloomberg) — Just a year ago today, Chris Perrotta joined a revolution on Wall Street: He bought one of those crazy meme stocks — and made a small fortune.
Today Perrotta, like countless other amateur traders who pushed the stock “over the moon” and challenged the pros in early 2021, is staring at old dreams of a new Wall-Street order all around him.
Meme stocks, cryptocurrencies, the broader stock market: all have fallen at astonishing pace this year, and some strategists think the pain will end there.
The loss is worrying, but so is the realization that the social-media driven rebellion against Big Money is hurting against market realities.
Perrotta, 37, says he bought 3,000 shares of AMC Entertainment Holdings Inc. in January. 25, 2021, at about $5. As soon as AMC raised as much as $60, it made enough to pay for its new truck. To celebrate, they found a license plate that read “STONKS.”
“Everyone was playing with new money,” Perrotta, a power-company employee in Nova Scotia, says of the frenzy a year ago. “Right now, I see it as being in the precipice.”
He adds: “A lot of them will start to see the damage.”
Many already have. Over the past two months, AMC and GameStop Corp. has fallen by more than 50%. A basket of 37 meme stocks tracked by Bloomberg has gone on a seven-day slide, wiping out 15% of its value. A measure of companies that went public by merging with special-purpose acquisition companies known as SPACs have crashed 65% from February’s highs. In early trading Tuesday, the S&P 500 index shed 2% and the technology-heavy Nasdaq 100 lowered key benchmarks.
But change goes beyond profit and loss. Wallstreetbets, the Reddit forum that exposed the Gamestop, AMC, and “Stonks” craze, is getting little attention. A year ago it was trending on Twitter. Robinhood Markets Inc., whose free trading app lured many into the market and set the stage for its initial offering, has become a powerful symbol of its reversal, with its shares down 85% in August. For now, little timers dreaming of beating the big money have received a hard lesson in who rules the markets.
According to Bloomberg Intelligence, the market share of retail traders has dropped from historic lows during the pandemic – it reached 24% in the first quarter of 2021 – to almost 18%.
“Most retail investors don’t know how to trade in this market,” said Larry Tabb, head of market structure research at Bloomberg Intelligence. “They buy – the price goes up, they sell and buy again. But when the market falls, they aren’t sure how to short, haven’t understood the options, and when they buy and lose, they think that prices will rise again, so they stay rather than sell.”
Sure, some retail investors made millions of dollars. Some left their jobs. Others paid off their student loans. But with inflation running at the fastest pace in nearly four decades, the Federal Reserve anticipates tightening policy — meaning there will be less money around the economy that stocks brick-and-mortar video game retailers. Can go into or struggle in the chains of cinema-theatre. Some comrades long ago went to the next frontier: cryptocurrencies and NFTs in the metaverse.
“For a long time, everyone was playing with new money, which kept that momentum going,” Perrotta said. “But now that some of that level has been leveled out, a lot of steam is being blown off people’s expectations in the short term.”
JJ Kinahan, chief market strategist at TD Ameritrade, said increased market participation by retail traders means that even if the Fed delivers on its promise to raise rates, it doesn’t necessarily deter people from investing. Instead, it could lead them to other vehicles that may not have been a good option in the past five years, but may suddenly seem more attractive, such as bonds.
“These are people who can begin to understand the different products they can choose from for their financial future,” Kinahan said. “The market is constantly changing, and it’s the other way around.”
Ashley Duncan has changed with the market. The 29-year-old from Dallas followed a trajectory similar to that of many other traders. He started buying meme stock as soon as he heard about GameStop in late January. This led him to cryptocurrencies and then to NFTs, where he struck gold.
“With the stock, that was my base,” she said. “That was where I made money to fund what I have now.”
He now has a lucrative NFT business partnering with the American Cancer Society. Duncan says he initially made about $20,000 on a combination of meme and cannabis shares in early 2021. He sold half and put that money into crypto. The project is called “Crypto Titis” because of his time in crypto. She is currently planning her next NFT effort called “She Survives”.
Inflation — and how the Fed responds — is forcing retail investors to recalculate. In October, Drew Wisdom — a 30-year-old real-estate asset manager from Louisville who began investing in meme stocks during last year’s wave — wrote articles from financial influencers (or “fininfluencers”) warning about inflation. Keep coming in He liquidated a significant portion of his stock portfolio and transitioned to crypto.
“The natural train of thought is: ‘If my dollars are going to be worth less, where can I put my money – my net worth and wealth – so that it’s not going to lose money?’ he said. “And then it was like, ‘Okay, duh. Crypto.'”
But the crypto markets are going through their own turmoil. Bitcoin, the world’s largest digital currency, is down 50% from its record high in November. The condition of other coins is worse.
Some retail investors were expecting more regulation of the big Wall Street organizations in the wake of the GameStop and AMC frenzy. Not much has come of it.
“The SEC has done nothing, the DOJ has done nothing, there has been no real change,” said Michael Arevalo, a 31-year-old day trader in New York City.
Congress held a hearing with the players involved in the GameStop play in February. And in December, Bloomberg News reported that the US Justice Department had launched an extensive criminal investigation into short sales by hedge funds and research firms, investigating their symbiotic relationships and hunting for signs that they improperly coordinated business. or broke other laws for profit.
Still, while the participation of retail investors in the market will probably decrease, the combination of social media and free trade isn’t going anywhere.
“What Street has learned is that a lot of the change in retail participation over the past year was structural, not cyclical,” said Ben Ladler, global market strategist at the eToro platform.
But will January of last year repeat itself? Ladler believes that as meme stocks have gone more mainstream and broadened to include more companies, the focus that propelled GameStop so high is now gone.
“If I go up to 10 people and ask them, you know, ‘Give me five meme stocks,’ they’ll all give me GME and AMC, but after that, they’ll all give me different names.” They said.
To contact the authors of this story:
Charlie Wells in London [email protected]
Miserlena Egkolfopolu in New York [email protected]