Risky Betting Defined Investors' First Quarter. Will It Continue?
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Here's your money briefing for Thursday, April 1st. I'm J.R. Whalen for The Wall Street Journal. If the second quarter on Wall Street is anything like the first, you might want to buckle your seatbelt. Day traders this year have cast aside any fear of risk and poured mountains of cash into the market, upending decades-old rules of investing.
I think one thing that really surprised a lot of people is just how risk tolerant these investors have been. I mean, in the first quarter, we saw individuals in particular driving up huge amounts of trading activity in some of the most heavily shorted stocks in the world.
So what did investors, big and small, learn from the past quarter? And how long will the trading frenzy continue? We'll ask our markets reporter Akani Ohtani after the break.
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How did markets perform in the first quarter and why was it surprising?
The brave new world on Wall Street with newcomers casting aside the fear of risk and running up stock prices helped U.S. markets in the first quarter flirting with new records. So where do we go from here? Our markets reporter Akani Ohtani has been tracking this and she joins me now to discuss. Akani, thanks for being with us.
Thanks for having me.
So, Akani, the Dow was up 7.8% in the first quarter and the S&P 500 was up 5.8%, just shy of a record. That's a lot different than what money managers were predicting at the start of 2021.
Absolutely. I mean, I think investors had started this year with pretty muted expectations because there was a sense that because of the pandemic, a lot of the recovery in the economy would take quite some time. And, you know, at the best case scenario, I think they were expecting a rather muted rollout, especially when it comes to vaccinations in the U.S. But we actually ended up seeing the pace of vaccinations, I think, pleasantly surprised to the upside and And that, in combination with what the Federal Reserve has been doing and the amount of fiscal stimulus that we were getting from the federal government, really helped markets stage this powerful sort of shift in the second half of the first quarter, where we saw bond yields really rising to about the 1.7% level for the 10-year period.
compared with around 0.9% at the start of the year. And tech stocks really sort of fall out of favor. And in bank stocks and energy stocks, takeover market leadership. And then also just this huge big boom in individual investing as well.
Right. So let's talk about those individual investors. The past year was tough financially for a lot of us. And yet a lot of people sitting at home felt comfortable putting large amounts on the line in the market. What's been causing that?
I think part of it has to do with this big shift that we've been seeing among retail brokerages over the last couple of years. I mean, we've seen a lot of these brokerages, of course, get rid of commissions on online trades. That was a big step. And then also roll out more incentives for individual investors, such as giving them maybe a free trade or a free stock if they sign up for an account or just sort of gamifying trading and making it more accessible and fun on mobile apps.
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