Just How Hot is the US Stock Market?

26 Jan 2021

It’s been stunning to watch the SP500SPY rise a staggering 70%+ since the lows of March 2020. As the market has risen, traders should also start to pay attention to aggregate exchange volumes to get an idea of where we are in this most aggressive of bull markets.

So CBOE is the third largest US stock exchange after NDAQ and the New York Stock Exchange, which is a subsidiary of Intercontinental Exchange ICE. CBOE frequently publishes data about total trading volumes across all US exchanges and dark pools, both for total share volume and value traded.

When you look at the changes in the CBOE data over the past year, it’s absolutely staggering.

So just one year ago on January 27th, 2020, there were 8.2 billion shares traded in US markets, with an aggregate notional value of $410 billion dollars. And that’s just in one day.

So what do the stats look like for 2021? Well, yesterday on January 25th, there were 16.6 billion shares traded with an aggregate notional value of $687 billion dollars. Wow, so there are about 100% more shares being traded now than just one year ago. For reference, yesterday there were about 178 million shares of Gamestop GME traded! It’s also interesting to note that given these statistics, the average price of the shares being traded has declined over the past year.

What exactly is driving all of this trading? Well it’s a combination of factors, and you can’t just blame the Robinhood crowd, although it should be noted they have an impressive record recently. It's estimated by many media outlets that Robinhood has around 15 million accounts. Traditional brokerages like Fidelity and SchwabSCHW have also seen a huge growth in accounts over the past year as we have all been stuck at home.

When you look beneath the hood of the US stock markets, besides just more trading from both Americans and foreigners, bigger margin loans and options are also driving increased trading activity.

Funds and individual investors alike are trading more with borrowed money. Aggregate margin loans are actually the highest they have ever been in history. In Jan 2020, total margin loans outstanding in the US was about $560 billion dollars. Now it’s over $720 billion. Risk on.

Options trading is also reaching records. According to the Wall Street Journal, there are now about 30 million call options being traded everyday. For the year 2019, the average was around 10 million call options per day. While it’s hard to say exactly, this options activity is definitely having an effect on the market because when investors purchase options, the bank or market maker selling them the options often has to purchase the stock in question to hedge their risk.

The US market is definitely pretty hot right now, but How could investors play it? Well if you want to trade stocks that are really fueling the rally, the ARKK and ARKG ETFs from early Tesla backer Cathie Wood are definitely some of the highest beta choices that invest across groups of global tech and healthcare stocks. The Nasdaq QQQ ETF QQQ and SP500 ETF SPY also have heavy weightings in some of the best performing tech stocks. The key difference is that QQQ is just the largest 100 Nasdaq listed non-financial stocks, so it’s more concentrated in tech compared to the SP500. QQQ has about 40% of its holdings in AppleAAPL, Microsoft MSFT, AmazonAMZN, Tesla TSLA, and Facebook FB, but for the SP 500 ETF SPY the proportion comprised by those 5 stocks is about 20%.

If you wanted to short the indices without directly selling short the ETFs, you could also purchase SH or SQQQ which are ETFs that short the aforementioned baskets of stocks included in the indices. Be careful SQQQ is 3X the inverse daily return of QQQ whereas SH is only 1X inverse. If you want to short the Nasdaq with less exposure, you could consider the PSQ ETF, which is 1X inverse the daily return of the Nasdaq 100.

If you’re more cautious and don’t know where to put your money given high prices just about everywhere, you could look at mining companies which have been benefitting from inflationary concerns as well as a runup in metals prices due to all the copper, iron, and nickel that green energy companies like batteries and electric vehicle manufacturers have to purchase. Warren Buffet invested in major Canadian gold miner, Barrick Gold GOLD, and investors could also invest in major global mining companies with big dividends like Rio RIO, Vale VALE, and BHPBHP. Finally, for those who want to play the gold price, the iShares Gold Trust ETF IAU from BlackrockBLK which holds about 525 tonnes of gold bars in vaults in New York and London is probably the easiest, most cost effective and liquid choice, as the ETF’s management fee is just 0.25% per annum and tens of millions of shares are traded everyday.

This article is brought to you by Tiger Brokers, a leading online brokerage that has partnered with TradingView to provide US markets brokerage services to TradingView clients in Singapore and Malaysia. Tiger Brokers is a subsidiary of Nasdaq listed, UP Fintech Holding Limited (Nasdaq:TIGR).