By Hannah Miao
The rally that powered stocks higher for much of this year made everyday investors excited about trading again.
Amateurs flocked to trading platforms during the pandemic but pulled back in 2022 when the market dropped. When stocks climbed to new highs in 2024, many jumped back in -- and had fun trading once more.
Before a 3.9% drop in April, the S&P 500 notched its best first-quarter performance in five years and clinched 22 record closes. The benchmark index is now up 5.8% this year. Shares of chip maker Nvidia, a popular stock among individual investors, have soared 67% in 2024. Nine of the 11 sectors in the S&P 500 are up this year.
"It has been very, very hard to lose money," said Allen Tran, a 26-year-old in the Chicago suburbs.
Tran is the founder of HaiKhuu Trading, which runs groups on Facebook and Discord for individual investors. The number of active members in HaiKhuu's biggest Facebook group has more than quadrupled since the beginning of last year to roughly 83,000, he said. On Discord, Tran said the chat room feels buzzier than it has in the past two years.
Earnings reports and financial disclosures from some of the biggest retail brokerages also reflect an uptick in trading to start the year.
The average daily number of clients' trades handled by Charles Schwab rose to nearly six million in the first quarter, the most since the second quarter of 2022 and up 15% from the last quarter of 2023. At Morgan Stanley, which owns E*Trade, self-directed investors placed an average of 841,000 trades a day in the first quarter, also the most since the second quarter of 2022.
Interactive Brokers added 184,000 new accounts in the first quarter, second only to the first quarter of 2021 -- when meme-stock mania took over markets -- and twice the number of accounts added in all of 2019. Account growth was led by individual investors, according to the company, whose clients also include financial professionals.
Robinhood Markets reported 1.9 million average daily equity trades in February, the most since January 2022. Nearly $81 billion changed hands on those trades, the highest monthly equity-trading volume on a dollar basis since November 2021. Robinhood is scheduled to report first-quarter results on May 8.
The recent drop in stocks, however, threatens investor enthusiasm. Inflation has proved stickier than expected, dialing back expectations for interest-rate cuts that seemed all but guaranteed at the beginning of 2024. Some now wonder whether the Federal Reserve will even lower rates this year. Slowing economic growth adds to concerns.
Stocks also appear relatively pricey compared with companies' underlying profits. Companies in the S&P 500 are trading at around 20 times their projected earnings over the next 12 months, above the five-year average of about 19, according to FactSet.
Still, some remain hopeful. Julio Padilla, a 33-year-old accountant in Edison, N.J., is optimistic about 2024. He expects the Fed to cut rates later this year, which should help boost stocks, and believes the presidential election year is a positive for the market. He trades options contracts, buys stocks for the long term and contributes to a 401(k).
"This year is going great," he said.
Options trading has seen a surge in activity from rookie investors, particularly in risky contracts tied to individual stocks or indexes that expire in just a few days, or in some cases, hours. Robinhood customers traded about 119 million options contracts in February, a monthly record in the company's disclosures going back to January 2021.
Padilla said he trades one-day options every day, primarily contracts betting on Invesco's QQQ exchange-traded fund tracking the Nasdaq-100 index of big tech stocks.
"It's very volatile," Padilla said. "But sometimes the payout is tremendous."
Some corners of the market have resembled the risk-on mood of 2020 and 2021, when amateur investors sparked wild swings in stocks such as GameStop and AMC Entertainment.
Reddit, a go-to social-media platform among rookie traders and the birthplace of meme stocks, itself began trading after the company's public debut in March. The platform offered some shares in its initial public offering to its own users. Shares of Reddit popped 48% in their first day of trading, but have fallen 35% from their March 26 closing high.
Trump Media & Technology Group, the parent company of former President Donald Trump's Truth Social app, went public via a merger with a special-purpose acquisition company in March. Shares have traded wildly, surging 16% in their first day of trading. The stock is now down 42% from its March 27 close.
Shares of Destiny Tech100, a closed-end fund that aims to give everyday investors access to private companies, have soared well above the underlying value of its holdings since the fund's public listing last month. The fund owns stakes in companies such as SpaceX and reported a net asset value of $4.84 per share at the end of 2023. It opened at $8.25 a share on March 26 and reached as high as $105 intraday on April 8. Shares closed at $24.56 on Thursday.
Bitcoin ETFs made their debut in January, attracting billions of dollars from individuals looking to get exposure to cryptocurrency. The price of bitcoin has climbed 52% this year.
Justin Taylor, a 41-year-old marketing consultant in Los Angeles, bought Reddit shares in the company's IPO and sold them shortly after for a roughly 50% gain. He also purchased Alphabet shares after a recent drop in the Google parent's stock price and has traded some cryptocurrencies.
"There's a lot more degeneracy in general," he said of thrill-seeking behavior among amateur traders.
Despite the meme-like action, 2024 remains a far cry from 2020 and 2021, when zero-commission trading and Covid ushered in a new generation of rookie investors.
Milan Galik, chief executive of Interactive Brokers, said on the company's recent earnings call that a repeat of the pandemic-era day-trading boom is unlikely.
"There was not that much to do other than watching the Netflix shows and open brokerage account and start trading, which was then followed by the meme-stock mania," he said. "I do not expect something like this to happen anytime soon."
Write to Hannah Miao at hannah.miao@wsj.com
(END) Dow Jones Newswires
April 25, 2024 23:00 ET (03:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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