Market Pulse: Retail vs. Institutional Investor Power | June 9, 2024
Assumingt the average retail investor in the U.S. had around $200,000 invested in the stock market in 2021. And institutional investors, like banks, mutual funds, and hedge funds, manage about $731 billion in assets.
When comparing their influence, it would take about 3.65 million average retail investors to match the investment power of one large institutional investor.
In 2021, retail investors had a noticeable impact on stocks like GME and AMC. However, it was the scale of institutional investors that truly drove these stocks to higher levels. Institutional investors are responsible for over 85% of trades on the New York Stock Exchange.
Key institutional investors involved in GME and AMC trades in 2021 included BlackRock Inc., Bank of New York Mellon Corp, Van ECK Associates Corp, Charles Schwab Investment Management Inc., Nuveen Asset Management LLC, Vanguard Group Inc., and Tobam.
Institutional investors, often called “smart money,” have a significant influence on market movements. They have the resources and insight to take advantage of opportunities, including meme stocks and crypto assets. Many of these institutional investors also experienced losses during the GME and AMC events, highlighting the volatility of these trades.
WIn more recent days (Friday June 7, 2024), when GameStop issued more shares and released theirearnings report days earlier than expecetd, institutional investors quickly sold their holdings. This shows their ability to react promptly to market signals. Meanwhile, many retail investors, influenced by social media and figures like Roaring Kitty, were left holding depreciating assets.
Retail investors do play a role in the market, but their impact is much smaller compared to institutional investors. The GME and AMC trades in 2021 clearly show this difference. Institutional investors drive most of the market activity and have the tools to navigate complex market environments effectively.
Understanding the stock market means recognizing the dominant role of institutional investors. Retail investors need to be aware of these forces to make informed decisions and avoid being misled by social media hype or anecdotal success stories.
