Last year set several new records, and today, let’s take a look at some of the key trading trends heading into 2024.
Markets rally to new all-time highs
As interest rates fall, global markets rise. Last year was a good year for equity investors in many countries, with markets hitting record highs, including in Japan, which took more than three decades to recover from its 1990 highs.
But as we discussed in our recent macro outlook, global markets are also driven by a recovery in consumer spending and earnings — which are strongest among companies spending on artificial intelligence (AI). This helps explain the overall outperformance of the Nasdaq-100® and the U.S. large-cap indexes.
Figure 1: Global stock indexes rise, led by U.S. large-cap stocks
ETF inflows hit record high
The U.S. exchange-traded fund (ETF) industry also saw record inflows in 2024, with creation exceeding $1 trillion for the first time.
This, combined with positive returns (as mentioned above), pushed U.S. ETF assets under management to over $10 trillion by the end of the year.
Most new ETFs are active funds
ETF inflows were more than twice the $450 million in active mutual fund outflows. However, it would be a mistake to assume that this is the same as the shift from active to passive investing.
Data show that most newly launched ETFs are actively managed portfolios, with inflows into actively managed ETFs accounting for 28% of all ETF inflows.
Figure 2: Active ETFs dominate new listings and attract a clear 28% of ETF inflows
Not all ETFs hold U.S. stocks
However, you can’t compare that directly to the U.S. stock market capitalization (nearly $72 trillion at the end of the year).
This is because not all U.S. ETFs hold U.S. stocks. In fact, the asset management scale of U.S. ETFs includes:
- link ETFs, totaling $1.8 trillion (or 17.3%).
- international stockstotaling $1.5 trillion (or 14.8%).
- Commodities and currencies (including cryptocurrency ETFs), increased to $286 billion (or 2.75%).
Figure 3: ETP assets under management continue to rise
Find the most popular ETFs
It will also be interesting to see which specific ETFs will be most popular in 2024.
In the table below, we look at the ETFs with the largest changes in flows and shares across all ETF trades (the last two columns in Figure 4). We rank based on each factor and then based on the overall ranking below. It shows investors:
- Diversification, Stock, bond and currency ETF activity was strong.
- Buy U.S. broad marketmost ETFs have positive net flows associated with the Nasdaq-100® or S&P 500.
- selling bondsmost of the negative net flows of ETFs are related to bonds.
- Move into a new Bitcoin ETFmaking IBIT, one of the newly approved Bitcoin ETFs, the fastest ETF in history to reach $50 billion in AUM.
Figure 4: Top ETFs ranked by volume and flow
Trading volume skyrocketed again!
While quarterly trading volume didn’t reach the records set during the 2020 meme stock boom, we’ve seen a continued rise in trading volume (ADV) since the initial surge at the onset of the coronavirus outbreak, just as retail investors were receiving stimulus checks and realizing Transactions are now commission-free. In the fourth quarter of 2024, the average daily trading volume of the entire market exceeded 13 billion shares.
Penny stocks drive average daily trading volume higher
However, as we can see from the data, much of the recent increase in average daily volume has been due to an increase in trading in stocks under $1 (green bars). In fact, their share of ADV transactions has been increasing since 2017.
Of course, because these stocks are priced low, trading volume is much higher stock than they trade value. In fact, in Q4 2024, the composition of stocks trading below $1 is as follows:
- 16% of trading volume (ADV).
- Only 0.1% of the transaction amount.
Stocks under $1 also trade differently. On average, 60% of trades occur over-the-counter and 18% of stocks trade “overnight” (from after the close to before the open).
The ADV of higher priced stocks is falling
Interestingly, stocks trading above $5 actually traded essentially unchanged. This is despite a number of high-profile stock splits in recent years by companies like Amazon, Google and Nvidia. In fact, we estimate that forward splits in 2024 have added 479 million shares per day during the year – meaning activity in high-priced stocks has actually been declining.
Figure 5: Increased trading of low-priced products, driving overall market volume higher
OTC transactions hit a new record (more than 50%)!
Fragmentation has been increasing for decades. In 2008, stock trading volume on the top three exchanges accounted for nearly 69% of all stock trading volume.
At the same time, OTC market share continues to grow. Obviously, the U.S. market economy tends toward decentralization and over-the-counter transactions. In 2024, OTC trading will account for more than 50% of all daily trading volume over a total of 37 days.
Ironically, not so long ago, one academic argued that a 50% trading discount would be a turning point critical to the quality of the market – that when there is enough competition and incentives to establish an NBBO, it actually makes sense. benchmark.
Figure 6: OTC trading volume continues to grow despite the entry of new exchanges
Options trading grows stronger
Over the past eight years, options trading has grown even faster than stock trading. Options trading volume increased 317% compared to stock trading volume only It’s up 221%. One of the reasons for the growth of options trading is the increasing use of options in managed portfolios – like many of the ETFs we discuss here that embed option hedges. Not surprisingly, the composition of options trading has also changed over the past few years, with ETF options growing the fastest.
However, index option ADV also more than doubled. There may be many factors causing this, including:
- Increased demand for hedging in large markets.
- Tax benefits for trading index options (eligible for 60/40 long-term/short-term capital gains tax treatment).
- Additionally, short-term options that require more frequent rolling are also growing.
The Nasdaq 100 Index® (NDX®) option saw year-over-year ADV growth of 39% in 2024, building on an already record year in 2023, thanks to its investments in artificial intelligence companies.
Figure 7: Option ADV by Underlying
Data shows retail investors are also taking an increasing share of options trading. Our estimates are consistent with the results of some academic research, showing retail options ADV growing 13% year-over-year by 2024, more than tripling since 2019, and now accounting for more than 30% of the options market.
It’s hard to compare stock and option trading volumes
Some would argue that options are now trading in greater value on a daily basis than stocks. However, this is somewhat misleading.
First, we have shown that the delta of most options trades is well below 50%, meaning that the theoretical impact of the hedge on the stock market is much less than a one-on-one impact.
Additionally, as options expire, traders need to “roll over” positions every quarter, month or week – just to maintain exposure or hedge – and we see this in the change in open interest (graph here 4). The increase in shorter-dated weekly options means expiration trades occur more frequently, which significantly increases rollover and expiration day trading volumes.
Households now have the highest stock position in the past 80 years
We have previously noted that over the long term, stocks tend to outperform other assets owned by households, including bonds and homes. So the fact that data shows household stock holdings are at their highest level in more than 80 years should be a boon to the financial security of more Americans heading into retirement.
Figure 8: Retail holdings of U.S. stocks are also at high levels
American exceptionalism continues
The good news is that U.S. stock and options markets continue to grow. This helps American families grow their wealth and enhance their financial independence. It should also help U.S. companies fund growth and innovation, helping the market outperform in 2024.
This in turn will boost investment, jobs and the economy.
This is how efficient markets benefit everyone.
