Schwab, TD Ameritrade Experts Talk Retail Trader Sentiment, Inflation, Reopening Plays

The stock market has experienced some extreme volatility in recent weeks, but JJ Kinahan, TD Ameritrade's chief market strategist, says retail traders have still been buying stocks.

In fact, they increased their exposure to equities by about 10% overall in February, Kinahan said during an online discussion on Wednesday with Randy Frederick, VP of trading and derivatives at the Charles Schwab Corporation SCHW Center for Financial Research.

Kinahan and Frederick weighed in on what stocks retail traders are buying and selling, what the next market catalysts could be and concerns over rising interest rates and inflation.

What Traders Are Buying: “Clients are taking more exposure to the market overall,” Kinahan said. “When we have sell-offs, particularly in technology, clients will go to the FAANG stocks.”

Since Feb. 1, Alphabet, Inc GOOG GOOGL has been the only FAANG stock to outperform the overall market. Kinahan said Ameritrade users have been most aggressively buying Apple, Inc AAPL and Tesla Inc TSLA.

Since the beginning of February, Apple shares are down 10.3% and Tesla shares are down 19%.

“Our clients still believe in the long-term story of those stocks,” Kinahan said.

At the same time, Kinahan said clients have been selling vaccine plays, such as Pfizer Inc. PFE and Moderna Inc MRNA.

Zoom Video Communications Inc ZM and other work-from-home stocks are also experiencing selling pressure, he said: “Maybe they need another catalyst to continue that run.”

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Inflation, Housing Concerns: It’s understandable that investors are monitoring inflation numbers closely given the unprecedented government stimulus measures in the last year, said Frederick.

Yet there are different types of inflation, and it’s not necessarily bad for the market, he said. 

Inflation based on economic strength can be healthy for the market, and Frederick said economists are projecting some spectacular growth numbers for the U.S. economy in 2021.

“What I see is inflation for the right reasons, not inflation for the wrong reasons,” he said.

It’s been so long since there has been real inflation that some investors are freaking out about potential inflation that is still relatively modest compared to other periods in the past, Frederick said. 

When it comes to market risk, Frederick said he believes the U.S. housing market has become a bit overheated.

In his local area, he said he’s seen indications of as much as a 16% rise in prices in the last year.

Frederick, Kinahan's Reopening Plays: While reopening stocks could get a big boost in the next couple of quarters, Frederick said the services industry will likely lag other rebound stocks.

While many companies will experience pent-up demand from the shutdown, Frederick said there’s a cap to how much people will spend on restaurant dining and services such as salons and spas.

“That’s an area where you’re going to have a much longer run-up to get back to normal than other areas,” he said.

While services industries may struggle in 2021, Kinahan said banks could surprise to the upside.

Banks have adapted in the last decade and found a way to generate record profits during a period of historically low interest rates, he said.

Once those rates start to rise again, banks could be flooded with profits, and ETFs like the SPDR S&P Bank ETF KBE could take off, Kinahan said: “The financials I think have a great runway.”

Finally, Kinahan said investors should be watching employment numbers closely, but shouldn’t put too much weight on individual reports.

“Look for a trend, and the trend is a very positive one,” he said.