Retail investors flock to AAPL, MSFT, PFE: TD Ameritrade Strategist

TD Ameritrade's Investor Movement Index shows main street investors buying Apple, Tesla, Microsoft, Pfizer, Crowdstrike and new IPO Nikola. JJ Kinahan - TD Ameritrade chief market strategist discusses with Yahoo Finance's On The Move.

Video Transcript

ADAM SHAPIRO: Want to talk about some of the movements we're watching within stocks, and to do that, we invite back into the stream, JJ Kinahan. He is TD Ameritrade's Chief Market Strategist, and we usually get to talk to him about news regarding the investor movement index. This is a metric that TD Ameritrade releases, and it increased in July. It was up 1.76% percent from the June score. What does that mean for the average trader?

JJ KINAHAN: Sure. Hey, Adam. Thanks for having me, first of all. And what it really does is it measures our client's exposure to the market overall. So it's not a survey. It's not saying what are you going to do. It actually measures what our clients did, and in this case is for the month of July. They increase their exposure a little bit more to the market.

The one thing I think is interesting is there seems to be a narrative that the average retail investor is just going crazy, willy nilly buying everything they can. What we look at, when I look at this score is actually is at the mid end of the range for the last six years that we've been doing it, Adam. So this cautious optimism is what really is continuing. The biggest change I would say that we've seen in behavior of people.

You know, it's interesting. You just got done talking about Kodak right before the break. Yes, we had some clients who played in there, but overall, what we're seeing is people going to names they know one trusts, so to speak. Apple, Microsoft, Pfizer was really an interesting one that came up. We know obviously with COVID-19, hopefully some sort of inoculation, et cetera, that was a name that we don't normally see as being highly traded that was incredibly active. In fact, two of the weeks of July, it was our most purchased stock.

JULIE HYMAN: That is surprising, JJ, to see something like that, especially among retail investors. What also stuck out to me, though, is that you have Nikola and Crowdstrike also on that list. And really with Nikola, that also implies that people still have this appetite for these sort of hot, momentum, buzzy stocks. Where yes, perhaps there's a little more opportunity to get in there early, but there is also potentially more downside. And this is, of course, been a phenomenon that's been closely watched over the course of this rally is just how much risk are people taking? So it's not as though they're not taking any risk, judging from what you're seeing either.

JJ KINAHAN: No, absolutely not, Julie, and it's a good point. People are still getting in on those types of stocks. Hopefully, it's a smaller portion of their portfolio for some of them, because as we've seen, you know, the momentum up unfortunately in some of these cases has been followed by the momentum down. But I also think it's interesting, you know, when I look at Crowdstrike, relatively inexpensive, and I'm saying that in terms of pure price, not in terms of judgment, stock.

And so I think people also are putting a portion of their portfolio towards things like that where they're like, you know what? Their business makes sense, especially in times like this as we're all working from home and going more toward internet and particularly cloud security, so I do think that people see some actual business use on some of these also that may help longer term be a good investment.

ADAM SHAPIRO: JJ, I was curious, because you have 13 million client accounts, three million trades per day. And when you look at what sold, for instance, Facebook. There was that news about the Facebook advertising boycotts. Then we saw that it didn't really impact their bottom line with advertising. Would the index ever release to us a metric on a daily volume changes to get an idea of how quickly your clients are reacting as opposed to responding to what they're witnessing?

JJ KINAHAN: Yeah, we talk about that, Adam. Again, I think, you know, sometimes there's a difference between when you're a publicly traded company and when you're not about some of the things you can release and can't release. And in a way, we can do it to stay, you know, in good graces, if you will. But certainly, we have that conversation, because we know it's very, very interesting to people in the media, particularly, and to other investors.

You know, I think one of the things that shows like yours do well for the retail investor is let's face it. Many people are at home. They're in front of their computer. They sit down. The bell rings, and they're like, what do I do now? Hey, I wonder what everybody else is doing. And so I do think that, you know, that kind of service is valuable, so certainly, we do talk about that.

JULIA LA ROCHE: JJ, it's Julia. We were talking about what retail investors are buying. Adam was just referencing some of the things that they're selling. Let's dig further in on what they were selling. What were they net sellers of?

JJ KINAHAN: Well, Adam just mentioned, you know, Facebook was one that I found very interesting. Costco was one. And actually, the most interesting to me personally was FedEx, because we know that they had nice earnings. You know, the stock's had an incredible run, and so that one I sort of find interesting only because so many people ordering packages. You know, we know that their main competitor, UPS, talking about maybe a surcharge on some things, et cetera. You would think that because the business is so well, people might want to stick with that.

So to see people sell FedEx I thought was probably the most interesting thing where many are like OK, it's been good, but I like the index itself overall. I think there's still a sense of nervousness of can we continue to do well outside the technology sector, which has picked up a lot of new clients. I think people are nervous about if the government benefits do end up running out, you guys talked about that a few minutes ago, if nothing is decided there, will people start to cut back on their spending, which could hurt the FedEx UPS type business?

BRIAN CHEUNG: JJ, it's Brian Cheung here. I want to ask as an extension. I mean, has there been a lot of interest in derivatives, options trading? We know there's a lot of new people kind of entering this sphere here. You don't need to look past Dave Portnoy over at Barstool for people trying to get into the market for the first time. What has been the interest in maybe going beyond just simple ownership of stocks and getting into some of these more complicated trades?

JJ KINAHAN: Certainly, and if you know, you look at our earnings, you see that just over 35% of our trades are derivative trades every day. And one of the things that we try and spend a lot of time on, I think we do, I know we do, and we've seen that our education, and our education usage has gone up 300% year over year as people are trying to understand how to use options in a better way. And one of the things we teach about to get started in options, you know, the first trade that most people make is simply a covered call.

Start to understand how to enhance your portfolio rather than make it, hey, mama needs a new pair of shoes. That's not a good philosophy long term in investing, as you know reporting on it every day. So understanding how to-- listen, I think options are a great product. I traded options professionally for first 21 years of my career. But no product in and of itself is a bad product.

Understanding the product though is what you have to do. It's like fire. If you don't understand it, it's going to burn you really quickly, so will options. That said, with so many stocks trading in $200, $300, $400 and above, it is a way for people to leverage their money a little bit better, as long as they understand the risks involved and be able to participate in some of those stocks.

ADAM SHAPIRO: JJ, you should know that that phrase, mama needs a new pair of shoes, Brian does a segment for us called Yahoo You in which he's constantly talking about--

JJ KINAHAN: Yes.

ADAM SHAPIRO: --Heschung shoes. I have a suspicion that he's going to steal that from you. JJ Kinahan--

[LAUGHTER]

TD Ameritrade Chief Market Strategist.

JJ KINAHAN: Thanks, guys.

ADAM SHAPIRO: Thank you very much for being with.