Smart Investing

Covid Draws New Investors Into Markets

Investor sitting at computer

By Robert Jankiewicz, Research Specialist for Economic Research at Nasdaq 
 
Ever since Covid-19 struck, a strange thing has happened to U.S. stock trading. Market-wide volumes have increased by roughly 60% from March 2020 onward compared to 2019. Part of the reason for that seems to be increasing interest from retail investors. Using new Nasdaq data, we see that retail volumes roughly doubled as Covid fears struck the U.S. markets, and levels have remained elevated since (green shaded region in Chart 1). 
 
Of course, a few other factors also helped drive this trend, such as brokers reducing commissions to zero and the improvement of app-based tools for trading and investing. The data suggests retail value traded per day has averaged around $35 billion daily, or around $175 billion per week, since March 2020. 

Chart 1: Gross levels of retail trading activity 

Gross levels of retail trading activity

It is also worth noting that as Covid-19 benefits and stimulus payments made their way into people’s bank accounts, retail became stronger net-buyers during the same period. Before the pandemic, retail net buying often totaled to less than $1 billion, which represents a tiny fraction of all trading in U.S. stocks each week. However, data shows that retail became larger buyers of stocks as Covid-19 progressed, with average purchases during 2021 increasing to over $2 billion each week (Chart 2).  

Chart 2: Weekly net purchases by retail investors

Weekly net purchases by retail investors

It’s also interesting to see what retail trades.

The data show that retail consistently buys exchange-traded funds (ETFs), with just a couple of weeks of selling in the depths of the COVID sell-off in March 2020 (yellow line in Chart 3). Average ETF buying increased throughout 2021, a blowout year for total inflows which added to almost $1 trillion.

In contrast, retail investors trading varies much more significantly for company stocks. We see a number of periods of net-selling, especially around market sell-offs and weak economic news. That included a period of net selling at the very end of 2021 as Omicron fears spread around the world.

Despite Omicron fears, more diversified ETFs actually saw an uptick in net buying.

Chart 3: Weekly retail net purchases by stocks vs. ETPs

Weekly retail net purchases by stocks vs ETPs

For more information on this, you can read a study published by Nasdaq Economic Research recently on accounting for retail flows. You can also subscribe to the U.S. Retail Equity Flows (UREF) data, which comes from Nasdaq Data Link. 

This article was originally published in our Smart Investing newsletter. Subscribe here for more expert insights about the companies and players shaping the markets, giving you what you need to know to make smarter investing decisions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Nasdaq's Economic Research Team

Nasdaq

Led by Nasdaq Chief Economist Phil Mackintosh, the Economic Research Team helps to support all Nasdaq businesses in analyzing data and formulating policies designed to help improve trading, capital formation and market structure.

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