Trading Apps Are Riding High From a Toxic Relationship with Retail Traders

Americans have rekindled their love affair with the stock market — but like past flings, this romance comes with plenty of red flags. Retail investors are driving a historic rally that’s sent trading platforms soaring and market pros scrambling to keep up. With the S&P 500 at all-time highs, investment banks continuing to raise year-end targets, and margin debt crossing the $1T mark for the first time, the question is shifting from if we’re in a bubble to when it might burst.
Gains are the love language: The retail trading boom has created massive winners among brokerage platforms. Robinhood, Interactive Brokers, and Coinbase have jumped nearly 515%, 130% and 70% in the past year, respectively. Newer entrants like WeBull are up over 40% since its SPAC debut, and others are also eager to join, betting that retail enthusiasm will stick around. And they aren’t the only ones who want in:
The current retail frenzy bears an uncomfortable resemblance to the COVID-era trading rush that ended badly in 2022. Meme stocks are pumping again — sending shares of Opendoor, Kohl’s, and Rocket Mortgage soaring. In crypto, momentum is moving beyond Bitcoin, with Ethereum up over 25% in the past week, now trading just shy of its 2021 peak. And there’s no shortage of catalysts that could drive the craze.
Don’t ignore the red flags: Bank of America’s August Fund Manager Survey found 91% of money managers believe US stocks are overvalued. The top 10 companies now make up 40% of the S&P 500 — the highest concentration on record. The warning signs are there, but few are paying attention. And the longer this rally runs, the harder the eventual drop could be — a crash that might give trading apps a harsh dose of déjà vu.