Wall Street Fund Managers Tracking Retail Traders On Social Media
The behavior of retail traders is becoming a key focus of Wall Street fund managers, as smart money is now tracking social-media posts to determine the sentiment of the crowd.
The Wall Street Journal reports that 85% of hedge funds and 42% of asset managers are now monitoring retail-trading message boards, according to a survey by Bloomberg Intelligence.
JPMorgan Chase & Co (NYSE: JPM) introduced a new data product in September 2021 that indicates which securities individual investors are likely to buy and sell. About 50 clients, including some of the largest asset and quant managers, are testing the product, which includes data on which sectors and stocks are being talked about on social media. JMP Securities estimates that 15 million Americans signed up for brokerage accounts in 2021.
Their power was witnessed when retail traders on r/WallStreetBets subreddit banded together to spike the price of stocks like GameStop Corp (NYSE: GME) and AMC Entertainment Holdings Inc (NYSE: AMC).
An analysis by Ihor Dusaniwsky, at S3 Partners, found that just seven stocks in the U.S. market had short interest of 40% or more at the end of 2021.
That was down from 40 stocks at the beginning of January 2020 and 19 stocks in January 2021. “In the back of every hedge fund’s mind is, ‘I don’t want to be on the wrong side of a meme-stock play,’” Dusaniwsky told the Journal.