- TD Ameritrade clients boosted their stock-market exposure for the first time in four months, a May update to the firm’s Investor Movement Index showed Monday.
- The index jumped to 4.35 last month from 3.9 as net buying activity ended a downturn and matched the market’s broad rally.
- Travel companies Southwest Airlines and Norwegian Cruise Line were among the most-bought among TD Ameritrade clients, as were General Electric, Wells Fargo, and Disney.
- Tesla and Wayfair were among the most sold, the brokerage said.
- “People were expecting this to be a very rough recovery, but the move we’ve had is absolutely stunning,” JJ Kinahan, chief market strategist at TD Ameritrade, said in an interview.
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TD Ameritrade clients increased their exposure to the stock market for the first time in four months, a May update to the firm’s Investor Movement Index showed Monday.
The IMX jumped to 4.35 last month from 3.9 as net buying activity across beaten-down industries brought investors back from safe-haven assets and cash holdings. The same period saw the S&P 500 gain 7.3%, while the Dow Jones industrial average rose 6.8%. Surging tech mega-caps lifted the Nasdaq composite 9.9%.
The rotation arrived at the same time as the weakest bond-buying activity in two years, according to TD Ameritrade. Cboe’s volatility index VIX, often referred to as the market’s preferred gauge of investor fear, slid below 30 for the first time since the coronavirus sell-off began and equities trended higher. Once states began reopening and economic data pointed to a stabilizing economy, investors seized on growing optimism.
“People were expecting this to be a very rough recovery, but the move we’ve had is absolutely stunning,” JJ Kinahan, chief market strategist at TD Ameritrade, said in an interview.
Many clients grew more confident in their equity positioning as biotech firms including Moderna and Pfizer announced positive data out of their coronavirus vaccine trials. Markets rocketed higher after almost every hopeful update as investors crossed their fingers for a near-term coronavirus treatment.
As much as the trial updates helped stocks rally from their late-March lows, investors looking to mint gains in the biotech space should be cautious, Kinahan said, noting that the firms involved in the COVID vaccine moonshot could plummet just as quickly as they can soar.
“Investing in one of those stocks is not what investing in Eli Lilly or Johnson & Johnson was a year ago,” he said. “People have to be more educated about whenever you’re investing in something that has an extra element of volatility in it. That knife cuts both ways pretty quickly.”
Stocks that saw the most net buying through the month were among the sectors hardest hit by the first virus sell-offs. Travel companies Southwest Airlines and Norwegian Cruise Line were popular among TD Ameritrade clients, as were General Electric, Wells Fargo, and Disney.
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A handful of stocks fell victim to net selling, including Wayfair and Tesla. The latter remains a market winner, breaching its record close on Monday amid a rebound in Chinese car sales. Clients’ offloading of Tesla stock was likely profit-taking more than a loss of hope in the firm, Kinahan said.
“There are a lot of longtime owners of Tesla who are thinking ‘OK we’re near 52-week highs, how much better does it get?'” he said. “It’s a stock with an amazing comeback, but people are just a little bit nervous of the levels when it might end.”
Those fears of when the rally could pause are surely on investors’ minds now, especially after Friday’s hugely positive jobs report, the strategist added. The market’s next hurdle will arrive in earnings season, when firms will begin to reissue guidance and detail just how quickly they can come back from their virus hit. It’s hard for the market to sustain such a steep upswing, and investors’ optimism could easily be rattled by a major earnings miss, Kinahan said.
“My fear is that the reality of when we start getting real earnings,” he said. “When we start getting back to earnings that mean something, that you can trade off of, the reality of the earnings may not keep up with the great optimism that we’ve seen.”
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