How Trading In Ford, GE And Other Volatile Stocks Could Be Linked To Casino Closures

Thursday 30th April 2020

Short-term trading in the stock market has always been somewhat of a gamble. However, the coronavirus (COVID-19) economics shutdown may have transformed the stock market into a literal casino for gamblers.

DataTrek Research co-founder Nicholas Colas said this week there has been a flood of retail investors buying stocks in the past two weeks, a trend that has run counter to the way retail traders have behaved in the past. Colas said retail traders certainly didn't rush in to immediately buy the dips in 2008 or 1987.

"Retail tends to sell sudden shocks that cause incremental unemployment because, well, fear is a powerful motivator to action and many investors want liquidity in case they lose their jobs," he said.

However, a look at Robinhood data showing the stocks retail investors have been buying may provide some clues as to what is happening. The stocks below are the five most commonly held stocks on the Robinhood platform. For each stock, the increase in the number of accounts holding that stock since March 1 is also included.

Colas said the spike in accounts holding those specific stocks is also strange given the types of stocks they are as a whole. Aside from Disney, all of the stocks are extremely volatile, low-priced stocks that have frequently moved up or down more than 10% in a single day throughout the last two months.

"This shoves us to a strange, but we think useful, conclusion: the rush of retail investors into US equities is at least partly a function of a world with no casinos, no sports betting to speak of (horses and ping pong aside), and little to do outside the home," Colas said.

Colas backed up his theory by looking at Google search data for "buy stock" and "casino" and found that both searches spiked in the days following the announcements that major U.S. casino operators would be closing their businesses due to the outbreak.

Colas stopped short of claiming gamblers have been responsible for propping up stock prices in recent weeks, but he said the question of what will happen to the stock market when stay-at-home measures are lifted in the month ahead is compelling.

One key piece of information missing in the Robinhood account analysis is just how many total accounts Robinhood has added since March 1. Sure, the number of accounts holding Ford, GE and GoPro are up between 50% and 100%, but those numbers are only large if the total number of Robinhood accounts is up significantly less in that period.

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