The Robinhood Effect

The market seems to be taking a bit of a breather after all of the trading frenzies with GameStop and other “meme” stocks at the beginning of the year. The Reddit traders have seemed to move on to cannabis, as many cannabis stocks reached new highs in recent months. There is a lot to unpack with marijuana concerning federal regulations and the legalization of marijuana nationwide, but we will see how long this new ride lasts.

“It’s been a nice change of pace to the beginning of the year to watch all of the activity concerning the online trading craze, a craze we call the Robinhood Effect.”

This Robinhood effect has led to many young investors going it alone with just automated robo-advisors. By going that route, they’re are missing out on the full scope of strategies and advice they could have from top financial experts in the field. 401karat combines modern investment analysis with access to a real, professional financial advisor. With a real advisor, you can get 401(k) training to go along with all the other investment knowledge that you’ll never get with robo-platforms. 401(k) participants and investors should be able to discuss their financial questions or fears with a real person!

The Online Trading Craze

Most people didn’t have access to online trading back in the day, but nowadays people opening trading accounts online and picking individual stocks has become commonplace. On the positive side, it is fantastic to see all of these people get their feet wet so young when it comes to investing. However, the concern is that they are a bit more focused on greed and getting rich than they are on investing. As fiduciary to our clients, we must do what is in their best interests first and foremost. 

As a result, buying a “dinosaur” would not make the grade for our clients. A better strategy for these new investors would be to focus on buying quality, fundamentally sound companies with a strong future through dollar-cost averaging.

“Bäume wachsen nicht in den Himmel”  a German proverb that translates to “trees don’t grow to the sky. “  

This proverb suggests that there are natural limits to growth and improvement, and this includes investments. The proverb trees don’t grow to the sky is often used by bankers to describe the dangers of maturing companies with a high growth rate. In short, while we love the enthusiasm of these new investors, we hope they will begin to adopt sound investment strategies as they get their feet wet with these “meme” stocks.

Three Market Drivers 

Here at 401karat, we focus on three market drivers that lead to notable movements in the stock market: market economic fundamentals, technical environment, and investor sentiment.

• Our fundamental indicator follows 19 economic data points that track the underlying health of the US economy. From unemployment to homebuilding, changes in these economic data points tend to confirm recession or recovery after the technical and sentiment indicators have already reversed.
• Our technical indicator measures the current strength of US stocks through methods such as comparing US stocks to bonds and cash, charting, and more. The technical indicator focuses strictly on math, making it the most objective of the three indicators. While it does not act as a leading indicator, the technical indicator historically only turns negative in significant market downturns, correctly ignoring healthy market pullbacks like in the fourth quarter of 2018.
• Our sentiment indicator tracks how everyday investors currently feel towards the US economy and the stock market. Between 401karat’s own polling and professional surveys like the American Association of Individual Investors (AAII) Investment Sentiment Survey and Citigroup’s Panic/ Euphoria Model, 401karat tracks the two most dangerous emotions for investors: fear and greed.

Current Market Status 

From a technical standpoint, the pullback at the end of January helped to normalize most of the overbought levels we saw to begin the year. International equities and small cap stocks have also begun to join and, in some instances, surpass large cap stocks in the upper tier.

Despite the slight pullback we saw in the first quarter, investor sentiment remains greedy. The AAII Investor Sentiment Survey has over 44% of investors as bullish on stocks, which is a euphoric level based on levels from surveys in previous years. Citigroup’s Panic/Euphoria Model also continues to show euphoric emotions towards the market.

401(k) Training From a Top Financial Advisor 

Unlike automated robo-advisors that use the same investment strategies as they did in the 1950s, 401karat combines modern investment analysis with access to a real, professional financial advisor. 

If you’re facing challenges like company morale, productivity, getting 401(k) training for employees, staying competitive in the job market, or bringing in new talent, 401Karat can help you empower your employees to take control of their retirement. Take your employee benefits further by offering participant advice with quarterly modeling and financial education. If you’re interested in making sure you have the best employee benefits to stay competitive, schedule a consultation with  401karat.