The stock-market impact of millennial investors has gotten overblown amid declining trading volumes — and it's actually the older crowd that's exerted more influence, JPMorgan says

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  • Older retail investors were “partly responsible” for the market’s price swings through October and November, while younger traders played “a rather modest role,” JPMorgan strategists said Tuesday.
  • While the younger group typically invests in individual stocks and options, the older cohort more often uses funds to invest.
  • Older investors have been selling equity funds and buying bond funds through most of 2020, according to the bank. This activity has acted as a drag on the stock market.
  • Regardless of age, retail investors’ trading volumes have fallen from roughly 26% of all market volume in June to just 16% in September. The decline “raises questions” about the narrative that retail investors were behind the market’s summer rally, JPMorgan said.
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Despite millennial investors making headlines over the summer, older investors played a bigger role in driving the market’s recent swings, JPMorgan strategists said Tuesday.

A surge in retail-investor trading activity coincided with stocks’ climb to record highs in September, leading Wall Street to wonder whether individual traders were a new market driver. First-time millennial and Generation Z investors garnered unique attention for their risky day-trading habits and interest in highly volatile stocks. 

But while Wall Street legends including Leon Cooperman and Warren Buffett cautioned younger investors against high-risk plays, older retail traders played a bigger role in the market’s recent turbulence, according to JPMorgan.

The older group has been selling equity funds and buying bonds throughout the year and acting as a drag on the equity market, strategists led by Nikolaos Panigirtzoglou said in a note to clients. In turn, the cohort has been “partly responsible” for the correction in October and bounce-back in November.

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Younger investors, who tend to invest directly in individual stocks and options more than funds, appear to have played “a rather modest role” in steering the market, the team added. New York Stock Exchange margin-account data shows buying of nearly $30 billion in September, down from $40 billion in August, suggesting young investors “played little role” in that month’s correction, the strategists said.

While NYSE margin account data for October isn’t yet published, small call-option flows point to a similarly modest impact from young traders over the last two months, they added.

Falling trading volumes detract from claims that retail investors had taken over the market. Trading volume at retail brokerages surged over the summer as people rushed to profit from economic reopening and the market’s rapid ascent. Trades made through Robinhood, E-Trade, Charles Schwab, and TD Ameritrade accounted for a record-high 23% of all US equity market volume in June. Yet that share fell to 16% in September, landing just above pre-pandemic levels.

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JPM

The sharp decline in retail trading through the third quarter “raises questions about the narrative that US retail investors’ buying of individual stocks has been the main driver of the broader equity market rally this year,” JPMorgan said.

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