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Market Snapshot: The markets are waiting for something — but the battle for the hearts and minds of retail traders is already blazing

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A company that makes milk out of oats went public on Thursday and almost immediately shot up more than 30% as investors decided they wanted to digest the stock like a vegan hankering for dairy, and then there was the subtext.

Oatly’s
OTLY,
+11.19%

traditional IPO offering was a big win for plant-based foods and everyone who has grown tired of SPACs and direct listings, but it also served as a reminder that the volume of traders involved in January’s manic short squeeze on GameStop
GME,
+3.70%
,
AMC Entertainment
AMC,
-3.75%

and other meme stocks has subsided –despite some recent signs of life. However, the fervor among those retail players still in the markets remains as smoldering as it was in the middle of winter and the no-fee trading apps built to serve them are now competing to gain their business, their trust, and the next generation of players are now all but guaranteed to follow.

At the center of it remains trading app Robinhood. After fundamentally changing the game by offering customers free trading via an aggressive payment for order flow model, the platform for millennials forced more traditional brokerages to do the same in 2019, if only to avoid hemorrhaging customers and losing out on a whole new generation of traders.

Robinhood rode that retail zeitgeist to a valuation of nearly $40 billion in early 2021 before the unprecedented rampage by retail traders in January forced it to halt trading on GameStop and the other meme stocks it had incubated, enraging the meme stock traders who had made it such a phenomenon. They immediately came to see the app as a tool of a larger conspiracy, being puppeted by hedge funds and market makers who were short the stock and paying for the right to execute Robinhood’s trades.

After vocal denials of any malfeasance by Robinhood and its market makers, and multiple Congressional hearings into the kerfuffle, Reddit forums are still simmering with rage at the company. As retail traders have moved away from the app, they have also moved away from r/WallStreetBets, the internet board that gave rise to the entire meme stock movement, seeking more specific and less exploitable discussion threads.

On new subreddits dedicated to individual stocks and ideas there are countless threads devoted to teaching retail traders how to move their accounts to other no-fee platforms like Schwab, Vanguard or Fidelity, the same ones that had their hands forced by Robinhood in 2019.

“People hate Robinhood,” said Travis Rehl, a retail trader and the founder of HypeEquity, a platform that compiles social-media activity on individual stocks. “You see a post on social media where someone shares their Robinhood screen and I guarantee the comments are “You need to get off of Robinhood.”

On Tuesday, Fidelity took the first step in what could be the industry’s revenge on Robinhood.

Since Robinhood has proven that it’s inevitable that curious teens are going to experiment with equities, Fidelity is capitalizing on its relative age and wisdom by offering parents a place to let their itchy offspring try stock trading in a safer environment.

“Parents and guardians with a Fidelity account can work with their teen to establish the Youth Account and engage together in financial learning,” the company said in a release announcing its simply-titled Fidelity Youth Account, a product for 13 to 17-years olds designed to give “the teen hands-on experiences and helping create better financial habits as the teens age.”

But don’t count out Robinhood just yet.

Also on Thursday, Robinhood announced that its users will now be able to purchase pre-IPO shares in certain companies, breaking down what it sees as another barrier between institutional and retail traders.

Profiting off IPOs is indeed a perk of big banks and large funds which are capable of involving themselves in the underwriting of an offering or pledging enough capital to play a key role. Robinhood clearly sees giving Regular Joes a chance to get shares before the post-IPO pop as quite a value add.

That said, Robinhood is not yet underwriting offerings and will rely on agreements with companies to use them as something of a marketing tool for their IPOs. Fintech financial services platforms SoFi, which is underwriting public offerings, began offering its own clients early access to IPOs in March.

Robinhood was not in on the Oatly offering but on Thursday it announced that its users can start requesting a chance to buy pre-public share in medical scrub manufacturer Figs when it goes public in the next few weeks. This will test the appetite of customers for a maker of medical equipment as a once-in-a-century international pandemic ends and ever-more-aware investors try their hands at ever-more-popular direct listings and SPACs.

Retail traders are also braving the inherent risk of piling into volatile pre-IPO stocks in an environment where even brand-new public companies are diving into the crowded convertible bond market.

All of which sets the stage for next week after a recovering tech trade helped the Nasdaq Composite
COMP,
-0.48%

to snap a 4-week losing streak despite the S&P 500 index
SPX,
-0.08%

and Dow
DJIA,
+0.36%

each posting a second straight week of losses, making it four out of five weeks for the blue-chip Dow.

With less market moving economic data expected in coming days, the battle for retail traders’ attention may yet catch investor attention in a quiet week in which discussions of Federal Reserve asset purchases, new COVID vaccine data, and speculation about the strength of the economy’s reopening during the summer will be key factors in guiding traders eager for direction. 

Market Extra: Ford Motor, Enphase lead S&P 500’s best weekly performers, and Discovery among worst stocks

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