European Retail Investors Bullish on US Equity Indices

Spectrum Markets, the pan-European trading venue for securitised derivatives, has published its SERIX European retail investor sentiment data for September (see below for more information on methodology), which indicates a bullish stance across the three main US equity indices.

The monthly SERIX sentiment indicators for S&P 500, DOW and NASDAQ 100 were all bullish for the first time in a year, with S&P 500 sentiment also hitting a 12-month high of 103 in September. Trading volume on these underlyings spiked on September 20^th, ahead of the Federal Reserve’s monthly meeting, and returned to normal levels towards the end of the month.

“The US economy is recovering from the pandemic, and our SERIX data across the three major US indices suggests positive sentiment brought on by the Fed’s announcement that it will change its policy to move away from its crisis response”, explains Michael Hall, Head of Distribution of Spectrum Markets.

“Norges Bank has already started with raising interest rates, and there are a couple of indications that other central banks will follow this example. The Fed will probably start raising interest rates by next year in order to stabilise the world’s biggest equity market and avoid any bubbles. This again will increase the trust of retail investors in the market. Probably many of them will have already factored this in, which can be seen with all three indices”, adds Hall. 

“Comparing the SERIX against US indices reveals the twofold background of traders: whereas some investors try to sell equities because of rising corporate debt ratios, others see growing opportunities especially for quality stocks. Both trader groups generate higher trading activities, which we observed in our data. To illustrate, ahead of the Fed FOMC meeting on 21^st September all three indices moved down, clearly showing the nervousness among investors who are expecting a further tightening Fed policy. This downside movement, however, created lots of entering opportunities for investors who went long at the same time.”, says Hall.

During September, a record 77.8 million securitised derivatives were traded on Spectrum, with 34.9% of trades taking place outside of traditional hours (i.e. between 17:30 and 9:00 CET). 86.5% of the traded derivatives was on indices, 7% on currency pairs, 5.8% on commodities, and 0.7% on equities, with the top three traded underlying markets being DAX 40 (27.2%), NASDAQ 100 (15.9%) and OMX 30 (15.6%).

Looking at the SERIX data for the top three underlying markets, the DAX 40 continued a five-month trend of remaining broadly neutral, moving last month from 99 to 102, while the NASDAQ 100 continued the bullish momentum it started building in June. Meanwhile the OMX 30 held at 99 in September.

Calculating SERIX data

The Spectrum European Retail Investor Index (SERIX), uses the exchange’s pan-European trading data to shed light on investor sentiment towards current development in financial markets.

The index is calculated on a monthly basis by analysing retail investor trades placed and subtracting the proportion of bearish trades from the proportion of bullish trades, to give a single figure (rebased at 100) that indicates the strength and direction of sentiment:

SERIX = (% bullish trades – % bearish trades) + 100

Trades where long instruments are bought and trades where short instruments are sold are both considered bullish trades, while trades where long instruments are sold and trades where short instruments are bought are considered bearish trades. Trades that are matched by retail clients are disregarded. (For a detailed methodology and examples, please visit this link).