Pivots and the Retail Mindset

If you follow markets, you know that a Fed pivot is not necessarily bullish. On average, stocks bottomed 14 months after the Fed cuts rates for the first time following a recession. Bottoming post-rate cuts have happened in the last six recessionsThis is for many reasons – the Fed works on lagging data, high rates take time to affect earnings, loans renew at higher rates, etc. If people are waiting for a quick return to risk-on markets, it may be a long way off.

But, the post-rate cut bottoming stance seems to discount an entirely new investor group that has appeared in the last two years: retail.

Retail investors are no less sophisticated than traditional market participants – AMC and GameStop prove that sometimes the little guys have an edge. But, this new investor demographic is less concerned about fundamentals and is susceptible to memes and social media virality. Not only that, but the last two years have taught retail about liquidity, QE, and interest rates. We have all seen the ‘printer go brr’ memes.

I have even seen this meme-ing occurring in debates around the BTFD program. Many veteran Twitter accounts have pointed out the program is not QE and could lead to banks tightening their lending and causing a credit crisis. But, responses to the tweets are some form of the ‘printer go brr’ meme from anonymous accounts or seeming retail traders. These accounts indicate that any crisis will lead to more printing later on and interpret any situation as bullish.

Retail investors seem less likely to consider the fundamentals after a Fed pivot and will probably bid when the pause is announced and may be bidding already. Our analyst Ashwath drew attention to the effects of virality on banks in a prior feed post. But we now have virality and memes for every Fed decision. And in a market as small and speculative as crypto, memes sometimes matter more than fundamentals.

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