A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can register here. You can listen to an audio version of the newsletter by clicking on the same link.
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Reddit investors have been the center of many jokes over the past few years, but could these mischievous meme traders have the last laugh?
A surprising new survey found that 58% of institutional investors – the professionals who trade on behalf of banks and pension funds, known as “smart money” – admit to making an investment decision based on information from Reddit.
Of those who are familiar with the popular social media site, gossipy, 46% of those surveyed plan to use the platform more in the next year and around 50% believed that Reddit ” extremely important” in stock valuations, the Brunswick Group said. Institutional investors also cited Twitter and TikTok as useful platforms for investing research.
This radical shift in information gathering comes as a pandemic-era influx of retail investors, day traders and laypeople completely changes the way Wall Street operates.
What’s up: Retail investors are pouring $1.5 billion a day into the stock market, according to data from Vanda Research. Corporations are paying attention, and so are institutional investors. As High Street traders dominate the markets, it has become increasingly important for professional investors to keep up with what they are doing.
“Institutional investors are joining traditional retail-oriented online spaces,” wrote analysts at Brunswick. “This additional interest in retail investors may be due to the financial fallout from popular ‘meme stocks’ such as GameStop, AMC, and Bed Bath & Beyond while institutional investors a ‘ look for ways to keep the pulse on the conversation among retail investors.”
The overlap between institutional investors and retail isn’t limited to Reddit and social media. Robinhood Snacks was ranked as the most subscribed to newsletter by the institutional investors interviewed.
Brunswick has conducted its annual study on the digital practices of institutional investors for more than a decade. This year, it selected 257 institutional investors across North America, the United Kingdom, and the European Union.
Retail investors gather money, and power: Retail investors now account for half of the world’s wealth, according to a recent report by Bain & Company. That increase in power has led companies to structure investment products that attract these people, accelerating the convergence between the retail and institutional worlds.
At the same time, retail investors have become more knowledgeable and are doing their own research. About 63% of retail investors spent more time researching stocks in February than they did in the same month last year, according to research by a public investment platform.
Institutional investors, meanwhile, seem to be embracing the meme world. The hedge fund recently disclosed in a filing that it had increased its holdings of GameStop by about 15% over the last quarter.
▸ Two important jobs reports were released on Wednesday and the results were, strangely, contradictory.
The number of job openings in the United States fell to 10.8 million in January, down from a revised 11.23 million in December, the Bureau of Labor Statistics reported Wednesday as part of its monthly Job Openings and Labor Turnover Survey, or JOLTS.
At the same time. private businesses added more jobs than expected in February, according to ADP. The payroll company estimated 242,000 jobs were added last month, beating expectations of 200,000 and more than double the revised 119,000 added in January.
Investors, and the Federal Reserve, will be looking for more clarity on the state of the labor market in the official jobs numbers due on Friday morning.
Fed officials have expressed concern that a tight labor market could keep pressure on wages and, in turn, inflation.
▸ The gap between home seekers and actual homes widened significantly last year. New data shows that the US housing market is now short 6.5 million homes.
The overall housing rate decreased in 2022 while the completion rate increased. In 2022, there were about 1 million single-family home starts, which is 10.6% less than in 2021, although it is still more than in any other single year back to 2012.
Want to dig deeper? Check out Before The Bell’s interview with David O’Reilly, CEO of real estate developer Howard Hughes Corp.
▸ My colleague Brian Fung reports: US senators said Wednesday that bipartisan support is growing for an overhaul of a federal law known as Section 230 of the Communications Decency Act that largely gives immunity to high- technical platforms and websites in terms of what they publish.
“Here’s a message to Big Tech: Reform is coming,” said Sen. Richard Blumenthal, who chaired a technology subcommittee hearing to discuss changes in the law.
Lawmakers from both parties encouraged the Supreme Court to consider Section 230 when they heard Gonzalez v. Google, a case of whether YouTube could be sued for recommending videos that generated terrorism algorithmically to users.
The issue could have a major impact on how social media sites rank, display and promote online content.
But the senators said that regardless of what the Court rules, it is up to Congress to rewrite the law so that the public can give platforms to the court and hold them accountable.
Federal Reserve Chairman Jerome Powell concluded his second and final day of Congressional testimony with a largely uneventful three-hour hearing before the House Financial Services Committee on Wednesday.
But there was one special moment: Representative William Timmons asked a question about the trillion dollar coin. That is the farthest possibility a solution to the debt ceiling crisis where the president issues a $1 trillion platinum coin, deposits it with the Federal Reserve, and allows the government to continue paying its bills.
“There are no rabbits to be pulled out of hats here,” Powell said when asked if he would accept the medal. “That’s a rabbit coming out of a hat.”
