A recent Goldman Sachs (GS) report revealed that retail investor activity is slowing, which could lead to an influx of short sellers. Yahoo Finance anchor Julie Hyman breaks down the details of these findings and what they mean for markets and investors heading into earnings season.
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Video Transcript
Retail investor activity has declined, potentially emboldening short sellers.
This is according to a new report from Goldman Sachs.
Julie Hyman from Yahoo Finance takes a closer look: Julie.
Yes, I just spoke with John Marshall from Goldman Sachs’ derivatives research department, and he explained to me exactly what this means.
This is something Goldman Sachs measures regularly and isn’t all that unusual leading up to earnings releases, but the gist of the report is that investors should be careful about which stocks they bet on heading into earnings releases, because last year’s earnings season saw some unexpected moves and this one is expected to be more of the same.
What we’re looking at here is single stock option trading volume, which actually goes back a few years, but we’ve seen a slight decline in activity recently. At the same time, Goldman Sachs also produces a retail trade sentiment index, which has been flat to trending up as single stock options have declined.
John Marshall said this could certainly signal that there may be an opportunity for hedge funds to step in with short selling trades.
Here’s what he told us earlier:
Now, we’re not expecting the S&P to necessarily fall here, but we are expecting the weaker stocks — the highly leveraged stocks with weak fundamentals — to fall.
As we move into earnings season, we believe hedge funds will become more aggressive in shorting these stocks as the threat of a short squeeze from retail and the options market decreases.
And that’s evidenced by the decline in single stock option activity, and the threat of a short squeeze is reduced because retail market sentiment is relatively strong right now, at least according to this particular metric, Josh.
Okay.
Thank you, Julie.
