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A breadth of fresh air?

Steven W. Poser

Director, Research

June 20, 2023

A recent article in the Wall Street Journal1 pointed out that much of the 2023 market rally in the S&P 500 Index has been focused in eight mega-cap technology stocks. To further examine this trend, we look at some measures that could indicate whether or not retail is driving the trading, and at possible signs of sector rotation among retail investors. Similar to our recent article, we employ the share of non-Alternative Trading System (ATS) off-exchange trading (FINRA OTC) and TRF share across multiple market views to better describe recent stock market activity.

The "Big Eight"

The Wall Street Journal article noted the large difference in the performance of the S&P 500 Index, which is weighted by a stock’s market capitalization, and the equal-weighted version of that same index. The story pointed out that most of the S&P 500’s gains this year came from eight mega-cap technology stocks. These securities account for more than 27% of the S&P 500’s value (but less than 2% equal-weighted).

Most of the eight companies show very high non-ATS off-exchange share with even the lowest of the group in line with the overall S&P 500. A large part of non-ATS off-exchange activity is reported by wholesalers, who handle flow from retail brokers. We therefore consider a higher relative share of non-ATS off-exchange flow to be indicative of an increase in individual trading share of the market.

We looked at non-ATS share of off-exchange trading in the mega-cap tech stocks compared to the rest of the S&P 500 (Chart 1a). Over the past 12 months, more than 80% of the off-exchange volume has been on non-ATS venues in these stocks and is trending slightly higher in recent weeks. Other stocks in the S&P 500 show a lower average share, currently around 60%, after reaching 69% in late 2022: Q3, implying relatively lower retail share of trading. Overall, off-exchange volume (Chart 1b) has mostly been increasing for these stocks since last June. There has been a slight up-turn outside of the previously noted mega-cap stocks, but both non-ATS share and TRF share remain in the ranges in place for the past year.

We do need to take care in this analysis however in making any proclamations about changes in overall investor accumulation. A sharp increase in the non-ATS share of the market for a group, or a stock, could represent a large shift out of the asset. The FINRA data do not indicate who is buying and who is selling. The same goes for the overall TRF share, which could indicate funds and/or individuals entering or exiting long positions. The main factor giving us confidence in suggesting that the eight mega-caps have generally seen heavy retail buying is because of their overall price performance relative to the rest of the market.

Chart 1a: Non-ATS Off-Exchange Share of Trading for Mega-Cap Tech Stocks and Other S&P 500 Stocks

Chart 1b: Total Off-Exchange Share of Trading for Mega-Cap Tech Stocks and Other S&P 500 Stocks

A view from the market capitalization perspective

Another way to look at how retail is trading stocks is vis-à-vis market capitalization. We divided the market into small-, medium- and large-cap stocks, via the S&P 600, 400 and 500 indices. We compared the share of non-ATS off-exchange trading in securities in each of the three indices, as well as their TRF share (Chart 2a&2b). Apparent retail flow - as measured by share of non-ATS off-exchange trading - was far stronger in S&P 500 names than the mid- and small-cap indices. The trend has been slightly down for all three since last June.

It is worth noting that only the S&P 500 stocks had a non-ATS share above 65%. The S&P 400 and S&P 600 stocks mostly reported 50-55% of their off-exchange volume on non-ATS venues. S&P 500 stocks account for 72% of the total volume of securities in the three indexes, compared to 16% in the S&P 400 and 11% in the S&P 6002.

The small-cap index has recently seen an increasing share of non-ATS trading, although the mid-cap index has been dropping and the S&P 500 has been trendless this year. Of note, however, is the strong increase since late March in the overall off-exchange activity in the small-cap S&P 600, which, coupled with the non-ATS share improvement, may be indicative of an increase in both institutional and retail interest in small-cap stocks.

Although TRF share in the S&P 600 is at its highest level in a year, as is the non-ATS share, it is not clear that this is a clear signal of improving breadth or a move to accumulate positions in small-cap stocks as the S&P 600 has been range bound since March and only moved into positive territory in June3. As market behavioral and technical analysts might note, it is not uncommon for a spike in activity as individual investors finally capitulate, which may be why non-ATS and TRF share in the S&P 600 names has increased since late March.

Chart 2a: Off-Exchange Non-ATS Share of Trading by S&P Index Membership

Chart 2b: Total Off-Exchange Share of Trading by S&P Index Membership

Are new sectors stepping up retail interest?

Our final view of the markets is by economic sector for all the stocks in the three S&P indices. We remind the reader that changes in non-ATS share is likely indicative of increased retail share of trading in these names. This can be accumulation (buying) or distribution (selling).

Chart 3 shows the breakout of non-ATS share of off-exchange trading in the S&P 500, S&P 400 and S&P 600. Different sectors have the highest retail activity in each of the three indices. Information technology has been at or near the top for the past year in the large cap S&P 500, battling it out with consumer discretionary. Given all the articles we’ve seen this year about oversold cruises, increased airline fares, and Rolex watch sales, this is none too surprising.

It is clear that the love affair with the mega-cap tech firms does not extend to their less well-known brethren. Info-tech stocks in the S&P 400 have mostly stayed in the lower ranks of retail activity and have been entrenched in the middle of the road in the small-cap S&P 600.

Materials, which sit at the bottom of the S&P 500 retail activity ranks, top the mid-cap S&P 400 and spent much of late 2022 and early 2023 near the top of the small-cap index.

Financials have been steady in the middle of the S&P 500 and S&P 400. The Regional Banking meltdown earlier this year mostly impacted small-cap names the most and kept financials heavily traded by retail most of this year. Their rank did drop off during the worst of the sell-off but have recently moved to become the most actively traded sector in the S&P 600. This could represent some accumulation, as the regional bank index is well off its lows, but the index remains down by roughly 1/3 from where it stood at the turn of the year.

Chart 3a: S&P 500 (Large-cap) Sector Non-ATS Off-Exchange Share of Trading

Chart 3b: S&P 400 (Mid-cap) Sector Non-ATS Off-Exchange Share of Trading

Chart 3c: S&P 600 (Small-cap) Sector Non-ATS Off-Exchange Share of Trading


Combining detailed data that tracks ATS and non-ATS trading from FINRA, with individual stock and index performance, can help us paint a picture of individual investor activity in the market beyond their mutual fund holdings. We see little evidence that mega-cap technology stocks have lost their luster, though small upticks in other large-cap names may indicate a slight improvement in the fortunes of secondary names in the U.S. equity market. Adding these data items to traditional momentum and breadth analysis tools can help further uncover emerging market trends.


2 Our study excludes ETPs, warrants, rights and other non-corporate entities.

3 Our data does not yet reflect this information as the FINRA data we used for the study has a four-week delay for small-cap issues.

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