It seemed as if everyone was talking last week about the fact that New York Stock Exchange margin debt hit a record high of $507 billion in April 2015. There was a lot of speculation as to which market participants were adding to margin debt. I noticed several thought leaders indicating that the increase in margin debt was predominately fueled by institutions and professionals.
Retail investors have also been steadily adding to their margin debits all year. In TD Ameritrade's March earnings call, it was noted that margin balances for the quarter averaged a record $11.9 billion, up 13 percent from last year. Balances ended the month of March at $12.4 billion, which was also a record. TD Ameritrade is not unique. In E*Trade's first quarter call, they noted that margin balances grew by 500 million to end the quarter at a record $8.2 billion.
But margin is just one of many indicators that could be utilized to analyze sentiment. Investors can also dial up exposure to the equity markets by moving out of cash, increasing options trading, investing in higher BETA stocks or even equity ETFs. The TD Ameritrade Investor Movement Index® (IMXSM) looks at the portfolios from a sample of our six million funded client accounts and indexes their exposure to the equity market by looking at all of the ways that investors can become more bullish or bearish.
Source: TD Ameritrade
In May, the index advanced over 6% to 4.91 while the S&P slightly declined. TD Ameritrade clients were net buyers of equities during the period which helped drive the IMX to its third largest month-to-month percentage increase since the tracking of the index began in December 2012. Net buying of equities was not the only factor in the increase, however, as some widely held positions saw increases in volatility relative to the overall market.
May was kind of a meh month. Volatility in the S&P 500 (SDX), as measured by the VIX, traded below 12 for the first time since time since early December 2014 and set a new year-to-date low for the second month in a row. Early in the month, the S&P 500, Dow Jones Industrial Average (DJIA), NASDAQ Composite (IXIC), and Russell 2000 (IWM) gave up some of the gains they saw in April. The S&P 500 and Dow Jones Industrial Average rallied mid-month to set new all-time highs in the fourth week. Both indexes declined during the fifth week and ended the period near where they began. The NASDAQ Composite, which carried its new all-time high into the May IMX period, also traded downward through the third week of the month and rallied into the fourth week. It also finished the month very near where it began.
During the past six months, many retail investors had been reducing overall equity market exposure in the form of profit taking as the markets pushed to higher highs. May seemed to represent buying opportunities as stocks that retail has favored in the past dropped to more appealing entry level. This helped drive the IMX to its third largest month over month percentage increase in over two years.
What were they buying?
Social media stocks were a big part of the story in May. Popular social media stock Twitter (TWTR) -- which lost nearly a quarter of its value when disappointing earnings were leaked before market close. It then saw its volatility relative to the overall market increase -- and was a net buy in May as TD Ameritrade clients appeared to see opportunity at the new, lower price. LinkedIn (LNKD) was another social media name that also saw a steep decline surrounding its earnings announcement and was a net buy. Many retail investors also invested in Facebook (FB). Starbucks (SBUX) and Apple (AAPL), both of which traded downward after setting new highs around their earnings announcements, were also net buys. Disney (DIS), which also traded at a new all-time high following its earnings announcement, was another net buy.
What were they selling?
Financial sector issuers Bank of America (BAC) and Citigroup (C), which both traded upward in May, were popular net sells. Widely held dividend payers Microsoft (MSFT) and General Electric (GE) were both net sells as well. Sirius XM Holdings (SIRI) was net sold in May as it rose slightly from a level of support around $3.80 during the month. Mining company Freeport-McMoRan (FCX) was also net sold, as it traded at a year-to-date high.