Last week, it seemed as if everyone was talking about the fact that NYSE 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, and I noticed several thought leaders indicating that the increase in margin debt was predominantly fueled by institutions and professionals. Retail investors have also been steadily adding to their margin debts 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% 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 Q1 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 6 million funded client accounts and indexes their exposure to the equity market by looking at all the ways that investors can become more bullish or bearish.
In May, the index advanced over 6% to 4.91 while the S&P declined slightly. 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. In fact, volatility in the S&P 500 as measured by the VIX traded below 12 for the first 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, NASDAQ Composite, and Russell 2000 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.
Over 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 a more appealing entry level. This helped drive the IMX to its third largest month-over-month percentage increase in more than two years.
What were they buying?
Social media stocks were a big part of the story in May. Popular social media stock Twitter Inc. (TWTR)—which lost nearly a quarter of its value when disappointing earnings were leaked before market close, and then saw its volatility relative to the overall market increase—was a net buy in May as TD Ameritrade clients appeared to see opportunity at the new, lower price. LinkedIn Corp. (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, Inc. (FB). Starbucks Corp. (SBUX) and Apple Inc. (AAPL), both of which traded downward after setting new highs around their earnings announcements, were also net buys. Walt Disney Co. (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 Corp. (BAC) and Citigroup Inc. (C), which both traded upward in May, were popular net sells. Widely held dividend payers Microsoft Corp. (MSFT) and General Electric Co. (GE) were both net sells as well. Sirius XM Holdings Inc. (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 Inc. (FCX) was also net sold, as it traded at a year-to-date high.
IMX: Tell Us How You Really Feel
TD Ameritrade clients can chart the IMX using the symbol $IMX in either the thinkorswim® or TD Ameritrade Mobile Trader platforms.