Forget the banking crisis —Main Street's retail investors have barreled into embattled bank stocks. It looks like nothing tempts people to bet on an industry more than bargain prices, even if they're caused by the fear of imminent collapse.
In January and February, trading in First Republic Bank stock was outright sleepy. Retail investors averaged just about $20,000 in daily net purchases. After the collapse of Silicon Valley Bank on March 10, however, that daily average exploded to $10.3 million, according to data through April 10 from VandaTrack.
TD Ameritrade's Investment Movement Index, which tracks retail traders, found that its clients were net buyers of First Republic Bank in March even as the company's shares plummeted more than 88% over worries about uninsured deposits and the overall health of the banking system.
So far — and it's very early days — the optimism hasn't paid off: First Republic has been circling $15 a share for the last month, down from a range of $115 to $145 a share in the first two months of 2023.
PacWest Bancorp, meanwhile, another regional bank that sank in the immediate aftermath of the recent turmoil, saw post-SVB retail net purchases of its stock jump to an average of $2.9 million a day, up from virtually none in the first two months of the year, Again, buyers got bargains, paying $9 a share for a stock that had been trading around $30 in the previous few months.
The SPDR S&P Regional Banking ETF, which tracks a range of mid-sized banks, saw overall net purchases grow to an average $3.9 million a day, up from net sales of $120,000 for January and February.
It's not just regional banks. Individual investors have been piling into big bank stocks like Bank of America, Citi, JPMorgan and Wells Fargo, data from VandaTrack showed.
TD Ameritrade found that the buying interest amongst retail investors was strongest in the financial sector, which was down almost 10% during the period.
Retail investors sought out an opportunity to make "big pay-outs on a return of confidence," in the banking industry, said Marco Iachini, senior vice president of research at VandaTrack.
At the same time, he said, institutional investors, the so-called "smart money," have been trading out of volatile regional bank stocks.
Reddit, meanwhile, is full of posts with titles like "First Republic Bank is easy money" and "Regional Banks are significantly undervalued after SVB failure."
The worry: JPMorgan CEO Jamie Dimon warned last week in an interview with CNN that the banking crisis is far from over and that its consequences will likely be felt for years.
That could mean bad news for those who are betting they'll see big returns on regional bank stocks. This is a risky move for retail investors, said Iachini, and a speculative play.
And while retail flows into bank stocks are still high, they have waned significantly since mid-March. "That tells me retail capital isn't here to stay," said Iachini.
We're not seeing a meaningful recovery, at least yet, for regional bank stocks, he said. What we're seeing instead is a light version of what happened as individual investors fueled meme stocks in the early days of the pandemic.
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