28 APR 2022

'YOLO' Trading Slowdown and Equity Flows


This article is from Two-Minute Views featuring Scott Rubner, an equities sales and flow of funds specialist in the Global Markets Division. The article was originally published on April 12, 2022.


1. Why has retail “YOLO” trading activity slowed during the month of April and do you expect this level of activity to continue?

US Households own 39% of the US equity market and 20x more exposure than hedge funds. The largest owner of equities has slowed their trading activity ahead of April 18th tax deadline. We estimate a record $2.14 Trillion worth of realized capital gains in 2021, which means a record capital gains tax bill of $346 Billion due on Monday. This tax bill exceeds last year’s prior record of $270 Billion by 28%. This resembles trading activity from 2021. Retail traders saw a resurgence on call option activity during the second half of April after taxes were paid.

2. Who is the largest buyer of the equity market in 2022 and are they currently active?

US corporates are forecasted to be the largest buyer of US stocks in 2022. US corporate authorizations are on pace for their best year on record. GS Research projects $1 Trillion worth of corporate repurchase executions for 2022. On a net issuance, ex-issuance, GS research forecasts $700 Billion worth of demand. Given the slowdown in equity issuance, these flows have been supportive during increased levels of volatility. We are currently in the middle of peak blackout. We estimate that 95% of S&P 500 Corporates are in their earnings blackout window. GS corporate buyback open window returns on May 2nd and before the May FOMC meeting.

3. Why have US equities held in so well given the deteriorating global macro backdrop?

US equities have been viewed as a relatively safe asset by investors. US equities have seen the largest monthly inflows relative to the rest of the world on record. Flows are being repatriated back into the US market, which by index construction composition goes into the largest US companies. US fundamental L/S HF investors have sold equities for six straight weeks, while retail investors have added to US equities for six straight weeks.  

4. What is the number one investor question that is hitting your inbox right now in cross-asset flows?

How much money is sitting in bonds and cash (and losing to inflation)? The number one question to hit my desk: where is all of this money flowing into stocks coming from? Since 2016, there has been $4.6 Trillion inflows into bonds and cash vs $781 Billion into stocks. This is the GS Wedge. There has been 6x more inflows into bonds and stocks relative to equities.

5. What is the best performing Global Equity Market in Q1? How can LatAm markets decouple? 

Brazil is the best performing global equity market in the world YTD in USD terms and 4 out of the top 5 global equity markets in the world YTD are LatAm. How can LatAm equities decouple? This is the biggest flow of funds dynamic in ROW equities.

The average LatAm weighting since 2010, 12 years, has been 125bps. If LatAm weighting in global equity portfolios doubled from here, it would be just in line with 12-year average. During the last commodity bull market, LatAm portfolio weighting was 3.5x higher than it is today.

Q1 – best global equity markets in the world?

MSCI Latam +26.12% in Q1, best start since 1992.
MSCI Brazil +34.29% in Q1, best start since 1994.
MSCI Chile +28.78% in Q1, best start since 1992.
MSCI Peru +34.26% in Q1, best start on record.
MSCI Colombia +32.66% in Q1, best start since 2004.
MSCI World -5.53%, SPX -4.95%, NDX -9.08%.