Day traders earnings from ‘meme stock’ frenzy wiped out: report

Day traders purchased only $14 billion in stocks in April, the second-lowest level in over two years.

According to a report, Reddit-obsessed retail stock traders have lost all of their gains since the outbreak began as the government stimulus that kept markets afloat comes to a halt.

According to Morgan Stanley, retail traders who entered the market for the first time in 2020 and established a basket of their favourite stocks have been stung the worst by the recent stock market slump, losing on average all of the gains they made when markets were at their zenith.

While retail traders outpaced the S&P 500 from May 2020 to May 2021, their performance has since plummeted — and has been flat this year through March 2022, despite the S&P 500 gaining ground.

A comparable analysis using a Goldman Sachs retail stock basket yielded the same findings. From January 2020 to November 2021, the retail stock nearly doubled in value, but fell 32% this year. Similarly, the purchasing power of retail traders has dwindled. Day traders purchased only $14 billion in stocks in April, the second-lowest level in over two years.

According to economists, the Federal Reserve’s tightening is mostly to blame for the dip.

“A lot of these guys started trading right around COVID so their only investing experience was the wacked-out, Fed-fueled market,” Matthew Tuttle, chief executive officer at Tuttle Capital Management LLC, told Bloomberg. “That all changed with the Fed pivot in November, but they didn’t realize that because they have never seen a market that wasn’t supported by the Fed… the results have been horrific.”

Companies like GameStop and AMC, which reached dizzying — and clearly unsustainable — heights during the pandemic owing to retail investors snapping them up, are again trading at pre-pandemic levels.

As markets plummet and the government stops issuing stimulus checks, day traders who have banded together on Reddit to drive so-called meme stocks like AMC, Gamestop, and BlackBerry upward have run out of money.

AMC stock, which was trading for less than $3 per share just two years ago, soared to more than $60 per share in June. The stock has plummeted since its peak, trading at roughly $12 per share.

GameStop, which was trading for less than $4 per share two years ago, soared to more than $344 before tumbling back to under $100.

What goes up must, however, come down.

Even Robinhood, which went public for $38 a share in July and is known for its involvement in the “Reddit Rally” retail trading phenomena, has dropped more than 70% in the previous year.

The failure of Robinhood is a clear reminder that both meme stocks and the platform that enabled them to trade are out of style.

It’s a stunning turnaround for “meme stocks,” which were once so volatile that the Securities and Exchange Commission announced it was investigating into signs of market manipulation due to “volatility in certain stocks.”

Of course, markets are hurting in general. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite are all down significantly this year. Retail investors, on the other hand, may bear the brunt of the pain.

“Retail guys don’t know what the f*** they’re doing… and there’s gonna be more pain,” one broker who spoke on the condition of anonymity told The Post.

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