Home / Markets News & Opinions / Expensive Retail-Frenzy Stock Market Spooks ‘Smart Money’ Billionaires
4 min read

Expensive Retail-Frenzy Stock Market Spooks ‘Smart Money’ Billionaires

Last Updated September 23, 2020 1:56 PM
Joseph Young
Last Updated September 23, 2020 1:56 PM
  • Bryn Mawr Trust CIO Jeffrey Mills does not see new money entering the U.S. stock market.
  • Unemployment is at 36 million, and Fed Chair Jerome Powell sees it increasing.
  • The “smart money” is increasingly hedging their assets, while retail demand soars.

Bryn Mawr Trust CIO Jeffrey Mills, an investment firm that oversees $16.5 billion in wealth assets, believes the U.S. stock market is incorrectly measuring the economic consequences of the coronavirus pandemic. It echoes the prediction of Fed chair Jerome Powell, who sees a 30% decline in GDP. 

The sentiment around the stock market among billionaires is on the decline, as a confluence of geopolitical factors intensify uncertainty  in the global economy. Yet, the Dow Jones Industrial Average (DJIA) continues to climb with rising demand from retail investors.

dow jones
The Dow Jones Industrial Average (DJIA) climbs 1% in pre-market | Source: Yahoo Finance 

Retail Investors Be Aware: Institutions Are Getting Scared

The recent U.S. stock market rally was primarily fueled by retail investors.

Data shows young investors on Robinhood rushed into airlines and oil exchange-traded funds (ETFs)  among other relatively high-risk stocks in the past week.

As retail investors get ready for a full-on bull market, as is always the case, institutions are getting more cautious.

Mills warned a shortage of new money entering the U.S. stock market with valuations at a high point.

When the S&P 500 rose above 2,800 points, Mills said Bryn Mawr sold off some of its equities.

He said: 

We did use the rally above 2,800 [on the S&P 500] to lighten up a little bit on equities.

The sell-off of stocks by billionaires and hedge funds come as Warren Buffett of Berkshire Hathaway started to drop a minor portion of the firm’s portfolio.

stock market
Billionaire investors are hedging their assets despite stock market run | Source: SentimenTrader 

On May 11, Buffett sold $16.3 million of the firm’s U.S. Bancorp stock, following his well-documented sale of airline stocks in April. On May 16, Buffett followed up with a sell-off of his Goldman Sachs stock holding. 

While the greed and optimism of retail investors reach their peak, institutional investors are increasingly moving towards cash and other hedge options.

Why Are Institutions So Concerned?

As of May 18, 36 million Americans are unemployed . The U.K. is en route to seeing 1980s levels of unemployment , and major economies like Japan and India are already dipping into recession.

Retail investors seemingly believe that jobs lost during the coronavirus pandemic will return as soon as the number of new cases plateau and economies open.

But, investors are not taking into consideration the strain on supply chains and the declining business productivity that will continue to affect the economy post-coronavirus.

unemployment U.S.
Jerome Powell sees higher unemployment rates | Source: Danielle DiMartino Booth 

BlackRock CEO Larry Fink suggested a cascade of bankruptcies of small to medium-size business are likely next. Fink said heightened levels of fear among consumers may slow down the economic recovery from coronavirus.

When supply chains are condensed, bankruptcy filings increase, and geopolitical risks strengthen, businesses will not rush to hire in th near-term.

Also, most of the jobs lost in March and April were not focused on a single industry.

According to a report from the Bureau of Labor Statistics, unemployment rates in April rose substantially across all industries and worker groups.

The report read :

In April, unemployment rates rose sharply among all major worker groups. The rate was 13.0 percent for adult men, 15.5 percent for adult women, 31.9 percent for teenagers, 14.2 percent for Whites, 16.7 percent for Blacks, 14.5 percent for Asians, and 18.9 percent for Hispanics.

Institutions are considering a variety of data including unemployment, global economic trends, and the inflow of capital into the stock market. For now, institutional investors remain unconvinced of the ongoing uptrend.