Top Trading Trends from 2024 | U.S. Markets

Final 12 months, a quantity of new data had been set, and right this moment, we take a have a look at some of the highest trading trends from 2024.

Markets rallied to new all-time highs

As rates of interest fell, markets across the world rallied. Final 12 months was a good 12 months for stock traders in lots of nations, with markets hitting new all-time highs, together with within the Japanese market, which had taken more than three a long time to recuperate from highs set in 1990. 

However international markets had been additionally pushed by client spending and earnings recoveries – which had been strongest in corporations uncovered to spending on artificial intelligence (AI) – as we mentioned in our current macro outlook. That helps to clarify the outperformance of the Nasdaq-100® and U.S. large-cap indexes, typically.

Chart 1: International indexes rallied with U.S. massive caps main  

ETFs noticed document inflows

The U.S. exchange-traded funds (ETF) industry additionally noticed document inflows in 2024, with creations including to more than $1 trillion for the primary time ever. 

That, mixed with the optimistic returns (as famous above), helped propel U.S. ETF property to finish the 12 months with more than $10 trillion in AUM.

Most new ETFs are lively funds

ETF inflows had been more than double lively mutual fund outflows of $450 million. Nonetheless, assuming that’s the identical as an active-to-passive investment shift is incorrect.

As information reveals, the bulk of new ETF launches are actively managed portfolios, and inflows into lively ETFs are represented 28% of all ETF inflows. 

Chart 2: Lively ETFs dominate new listings and acquired overt 28% of ETF inflows

Not all ETFs maintain U.S. shares

Nonetheless, you possibly can’t evaluate this straight with U.S. stock market capitalization (which ended the 12 months at virtually $72 trillion). 

That’s as a result of not all U.S. ETFs maintain U.S. shares. Actually, the U.S. ETF AUM contains:

• Bond ETFs, which add up to $1.8 trillion (or 17.3%).
• Worldwide shares, which add up to $1.5 trillion (or 14.8%).
• Commodities and currencies (together with Crypto ETFs), which add to $286 billion (or 2.75%).

Chart 3: ETP property underneath management proceed to development greater

Searching for the most well-liked ETFs

It’s additionally attention-grabbing to see what particular ETFs had been the most well-liked in 2024. 

Within the desk beneath, we have a look at ETFs that noticed the biggest flows and change in share of all ETF trading (the final two columns in Chart 4). We rank by every of these elements, then kind by the mixed rank beneath. It reveals that traders:

• Have been diversified, with sturdy exercise in stock, bond and currency ETFs.
• Purchased U.S. massive cap, with most of the optimistic web flows in ETFs associated to Nasdaq-100® or S&P 500.
• Bought bonds, with most of the unfavourable web flows in ETFs associated to bonds.
• Rotated into the new Bitcoin ETFs, making IBIT, one of the newly accredited Bitcoin ETFs, the quickest ETF to $50 billion AUM ever.

Chart 4: High ETFs ranked by trading and flows 

Volumes jumped again!

Though quarterly volumes didn’t hit the document set during the meme stock craze in 2020, we have now seen a constant rise in volumes (ADV) because the initial soar when Covid began, simply after retail traders acquired Stimulus checks and realized trading was now commission-free.  In This fall of 2024, market extensive ADV averaged more than 13 billion shares per day.

Larger ADV pushed by low priced shares

Nonetheless, as we see from the info, most of the current increase in top-line ADV is because of growth in trading of sub-$1 shares (inexperienced bars). Actually, their share of trading ADV has constantly elevated since 2017. 

In fact, as a result of these shares have low costs, they trade a lot more shares than they trade in worth. Actually, in This fall of 2024, sub-$1 shares made up:

• 16% of quantity (ADV) traded.
• Simply 0.1% of worth traded.

Sub-$1 shares trade in a different way, too. On average, 60% of their trading happens off-exchange, and 18% of shares traded “overnight” (from simply after market close to proper earlier than market open).

Larger-priced stock ADV is falling

Apparently, trading in shares with costs above $5 has truly been primarily unchanged. That’s regardless of the quantity of high-profile stock splits in recent times in shares like AMZN, GOOG and NVDA. Actually, we estimate 2024 ahead splits have added 479 million shares a day in further volumes during the 12 months – which means greater priced shares exercise has truly been falling.

Chart 5: Elevated trading in low priced symbols pushing market extensive volumes greater  

Off-exchange trading hit new data (over 50%)!

Fragmentation has been rising for many years. In 2008, the highest three exchanges represented practically 69% of all equity quantity traded. 

Over the identical time, off-exchange market share has constantly gained. Clearly, U.S. market economics favor fragmentation, and lean towards off-exchange trading.  In 2024, off exchange trading was more than 50% of all ADV on a whole of 37 days.

Paradoxically, it wasn’t that long in the past, that an tutorial posited that fifty% off exchange could be a tipping level important to market high quality – the place there was enough competitors and incentive to have an NBBO, that the NBBO was truly a significant benchmark to guard traders. 

Chart 6: Quantity traded off-exchange continues to grow regardless of new exchange entrants   

Choices trading noticed even stronger growth 

Prior to now eight years, choices trading has grown even sooner than stock trading. Choices volumes have elevated 317%, in comparison with stock volumes which have solely gone up 221%. One cause for the growth of choices trading is the rising use of choices in managed portfolios – like many of the ETFs with embedded choices hedges we mentioned right here. Not surprisingly then, the composition of choices trading has modified as properly prior to now few years, with ETF choices growing essentially the most.

Nonetheless, index choices ADVs have additionally more than doubled. A quantity of elements could also be driving this, together with:

• Elevated demand for broad market hedging.
• Tax benefits of trading index choices (which qualify for 60/40 long-term/short-term capital beneficial properties tax therapy).
• Additionally, the growth of shorter-dated choices that need to roll more often.

Choices on the Nasdaq-100 Index® (NDX®), with its publicity to AI corporations, noticed ADVs grow 39% year-over-year in 2024, building on an already document 12 months in 2023.

Chart 7: Choices ADVs by underlying 

The info suggests retail traders are an rising share of choices trading, too. Our estimates, per these in some tutorial research, show that retail choices ADVs grew 13% YoY in 2024, have over tripled since 2019, and now make up over 30% of the choices market.

It is onerous to check shares and choices volumes

Some will say that choices now trade more worth every day than shares. Nonetheless, that’s a little deceptive.

For a begin, we have now proven that the majority choices are traded with delta properly beneath 50%, which means the theoretical impression on the stock market from hedging is properly beneath one-for-one. 

As well as, as a result of choices expire, merchants need to “roll” positions every quarter, month, or week – simply to keep up exposures or hedges – one thing we see in the way in which open curiosity adjustments (Chart 4 right here). The elevated adoption of shorter-dated weekly choices implies that expiry trading occurs more often, which has added considerably to roll and expiry date volumes. 

Households now have highest publicity to equities in previous 80 years

We’ve beforehand famous that over the long time period, shares are inclined to outperform different property that households own, together with bonds and housing. So, the truth that information reveals family possession of shares is on the highest degree in over 80 years must be good for the financial security of many more Individuals heading towards retirement.

Chart 8: Retail possession of shares within the U.S. additionally at highs 

U.S. exceptionalism continues

The great news is that the U.S. stock and choices markets proceed to grow. That helps U.S. households grow wealth and provides to their financial independence. It must also help U.S. corporations finance the growth and innovation that has been serving to the market outperform in 2024.

That, in flip, boosts investment, employment and the economic system. 

And that’s how environment friendly markets might be good for everybody.