Investors are sticking with the Magnificent Seven stocks while wagering on newer and more aggressive market opportunities. These were among the lessons about recent investor behavior that emerged from this week's brokerage earnings calls. Nvidia stock rose near a buy point in Friday's stock market action, after striking a new 52-week high on Thursday.
Here are six key takeaways:
Investors Hunting For New Opportunities
The S&P 500 rose 5.5% in the third quarter on the back of the first Fed rate cuts since 2020. Global markets rallied broadly, as well, following rate cuts in the U.K., Canada, Europe and China. Investors were quick to smell — and seize — an opportunity to bet on the direction of interest rates.
"CME futures volumes were up 27% vs. last year, also a record, as investors were eager to trade interest rate futures, in particular, in order to wager on rate changes," Nancy Stuebe, an Interactive Brokers investor relations director, said on Oct. 15, according to a FactSet transcript of the company's earnings call that day.
Investors Keep Faith With Magnificent 7 Stocks
On the equities side, the Magnificent 7 stocks loosened their iron-fisted grip of the U.S. stock market. More than half the Mag 7 stocks ended Q3 lower. Did investors flee? Nope.
"As in prior recent quarters, it appears so far that investors are holding onto these positions" in these stock market giants, Stuebe said. Investors "have not made changes like selling them to buy new names."
Among the Mag 7 stocks, Nvidia and Apple have been trying to break out this week from consolidations stretching back to the summer. Both are up significantly from their early August lows.
Amazon, Microsoft, Tesla, Alphabet continued to consolidate, basically having gone nowhere for months, despite daily and weekly swings.
Meta is the outlier, extended from an August breakout.
Investors Taking More Risk
During Q3, inflation eased. As the Fed began to lower interest rates, the S&P 500 hit all-time highs.
That prompted an investor frenzy to get in. Interactive Brokers added 196,000 new accounts, which Stuebe called "behind only the meme stock days" of Q1 2021. Charles Schwab added almost 1 million new brokerage accounts.
"Investor sentiment remained bullish during the quarter," CEO Walter Bettinger said during an Oct. 15 earnings call after Charles Schwab beat Q3 estimates.
In a telling sign, margin loans at Interactive Brokers jumped 28% last quarter. Rising markets and the anticipation of lower rates led investors to feel more comfortable taking on risk, Stuebe said. "In addition to taking on more leverage using margin loans, they also took on more assertive positions," she added.
Global Investors Clamor To Get In
Interactive Brokers said its client accounts continue to grow fastest in Europe and Asia. A booming U.S. stock market is a big draw.
"A growing numbers of investors worldwide want access to international and particularly U.S. markets," Stuebe said.
Investors Bet On Economy, Elections
After a nearly 3-year approval process, Interactive Brokers launched a forecast contract exchange on Aug. 1. It allows investors to buy yes and no contracts on the outcome of various events, such as key economic data, election results, future global temperatures and the size of the national debt.
Investors are lapping it up, with 800 clients trading since the exchange's launch in volume around $6 million, the company reports. The election political contracts is what currently resonates with our clientele," Interactive Brokers CEO Milan Galik said during the Oct. 15 earnings call.
Longer term, management said it sees investors gravitating toward "the economic indicators and the climate contracts."
Investor Needs Evolving With Stock Market At Records
After a two-year bull market for stocks, record numbers of ultra high-net-worth retail investors at Charles Schwab are seeking help to manage "some of the most complex financial planning and wealth management needs," management said on the earnings call. The company says it has seen record inflows into its wealth advisory business so far in 2024.
The online broker also reports more interest from regular retail investors in advanced strategies.
"Legacy Schwab clients are now taking advantage of the thinkorswim trading platform at a robust level," CEO Bettinger said.
Schwab bought TDAmeritrade in late 2020, thereby gaining the thinkorswim platform.
Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.
