Day traders: Riding the wave of the market

An army of “newly minted equity experts” are driving up the market and making Wall Street nervous, said Sarah Ponczek and Vildana Hajric in Bloomberg.com. Day traders, “enticed by everfalling fees” and easy-to-use trading apps such as Robinhood, “have shown an astonishing capacity to move prices,” taking to chat rooms and Reddit forums “to hype stocks and brag about their winnings.” Said one senior Wall Street strategist, “They don’t know anything about the market, but they’re betting on it.” They’ve bid up shares in everything from an obscure Chinese real estate company to the electric truck developer Nikola, taking their values into the billions of dollars overnight. Wall Street data show activity by small traders has jumped, and office workers stuck at home are thinking of quitting their jobs to trade full time. The spike in activity by amateur risk-takers has some investors worried about a bubble with “dot-com comparisons.”

The “captain of the day traders,” said Sophie Alexander and Katherine Greifeld, also in Bloomberg.com, is Dave Portnoy, the 43-year-old founder of the $160 million media empire Barstool Sports. Though he “had bought just one stock in his life before the quarantine hit,” Portnoy had no sports to gamble on, so he “dusted off his E*Trade account.” Now he livestreams as “Davey Day Trader Global” to his 1.5 million Twitter followers, touting the mantra “Stocks only go up!” while dissing long-acclaimed billionaire investor Warren Buffett as “washed up.”

Good luck to the investing newbies, said Howard Gold in MarketWatch.com. “No doubt these very astute people have done deep dives into balance sheets, loan covenants, and capital structures.” Oh, wait. “Some of us remember the 1990s, the days of theGlobe.com and ‘boot your broker’ and guys in their basements trading Yahoo stock.” This movie “never has a happy ending.” Robinhood’s design fuels this kind of gambling, said Felix Salmon in Axios .com. “Other brokerages sell ultra-sophisticated investing tools or boring things like retirement planning.” By contrast, Robinhood offers “an addictive mobile-native game.” Its users are frequently less interested in long-term profits than in the “enjoyment of playing.”

So far, the Robinhood investors’ timing has been perfect, said Maggie Fitzgerald in CNBC.com. You can call it dumb luck, but they started buying in March, when the market bottomed, and “increased their holdings just in time to cash in” on a 40 percent rally. “Meanwhile, many veteran investors and hedge-fund managers swore stocks would retest their lows.” Those veterans should stop pinning the whole surge on day traders, said Mark DeCambre and Sunny Oh in MarketWatch.com. Despite the spike in new accounts, day traders still “represent a small portion of the overall trading on Wall Street.” If you’re seeking the root cause of the stock market’s big run-up, look to the Federal Reserve and its limitless support of the financial markets.