A lot of people have been stumped about why markets have not been making sense. Trump announced tarrifs will go down but tariffs still hurt the economy and somehow the market goes up. 1 country strikes a trade deal and market goes up. Tesla reported terrible earnings then stock goes up. Moody's downgrade of US rating, as well as the largest store in the USA says prices will increase because of tariffs and market finishes positive during the first trading day after the news. None of it makes sense.
Smart investors are looking to make sense of a stock in order to determine a buy or a sell but literally everything seems unpredictable.. The resounding answer from the community seems to be "the market can remain irrational longer than you can remain solvent." and all the other common phrases you hear here. But what if it is being rational?
I've seen a lot of the blame placed on institutional investors trying to manipulate the market or they don't know what they're doing. "There's a reason 86% of them don't beat the S&P." But what if we have been placing blame on the wrong group?
YTD institutions have taken more money out or bet against the market significantly more than they have put in. AKA, if they controlled the stock market like they used to, the market would be nearly as predictable as we are used to.
What I think is not being accounted for is the exponential increase in retail investors. YTD retail investors have pumped the market with loads of cash and optimism. Retail has put in significantly more positive cash than institutions have negative.
Maybe we need to think less about how the market has reacted in the past or what institutions think. But take more of a balanced approach, taking into consideration retail investors.
However I'm not sure from where we would draw this retail investment consideration? From what I see on social media people are afraid of prices going up, tariffs, keeping their jobs and affording life basics. Not extra money to invest, let alone enough to sway markets.. However, accessibility is easier than ever. Online sports betting is a billion dollar business, investing is just as easy. Should we now consider hopium is the new leading default for retail investors and that retail money is stronger than institutional?