Did an App Cause the Stock Market’s 40% Rally?

Dear Fellow Investor,

To say that these are strange times would be an understatement.

And investors know this better than most…

Since February, the market has had not one but TWO records:

  1. The shortest bear market in history.
  2. Followed by the sharpest rally from 52-week lows in history.

It’s enough to make one’s head spin…but the more important question is: “What caused the incredible surge in stocks despite all the economic devastation?

The answer, according, might be individual investors.  

Is an App Responsible for a 40% Stock Market Rally?

As noted on June 10 by Bloomberg ETF Analyst Eric Balchunas via Twitter, media mentions of the stock trading app “Robinhood” have now surpassed Vanguard:

Image Source: Eric Balchunas via Twitter

This is impressive because for decades Vanguard has long been a leader when it comes to individual investing with estimated assets under management (AUM) of ~$5 Trillion (yes, that’s ‘Trillion’ with a ‘T’).

Robinhood, of course, is the recent upstart stock trading app with a claim-to-fame of being among the first to offer individuals $0 commissions when they buy or sell a stock. 

As stocks rebounded, more than one financial media personality offered up that it was Robinhood and the promise of making a quick return on a stock market rebound, which led to millions of Americans to pile into stocks.

But is that true? We decided to find out and the answer is, probably not. Here’s why:

  • The average Robinhood account holds just $1,000-$5,000 while the average E-Trade account size is $69,230.
  • Robinhood did recently surpass the 10 million-account milestone but that’s still small compared to the 24 million accounts that the newly combined TD Ameritrade/Charles Schwab will boast once their merger is complete. 
  • Robinhood was valued by the venture capital industry at just $7.6 billion as of last July. Compare that with Goldman Sach’s $70 billion market capitalization or the $150 billion controlled by Bridgewater Associations, the world’s largest hedge fund. 

The Bottom Line: So, did a commission-free stock trading app cause the 40% surge in stock prices? No. 

But that doesn’t mean the trend towards making investing more friendly to the average American isn’t real. In fact, as the reader is no doubt aware, many brokerages including Charles Schwab have eliminated stock and ETF commissions. 

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