Robinhood traders are not behind the market's recent rally, Barclays says

• Since recent market lows in March amid the coronavirus meltdown, retail traders have been jumping into stocks via zero-fee brokers such as Robinhood, fueling a popular narrative that new retail investors are driving the stock market's recent rally.
• A recent analysis by Barclays using Robintrack data found that there is no clear relationship between Robinhood users adding shares and S&P 500 index performance.
• In addition, Barclays found that there is actually a negative relationship between Robinhood ownership and stock price performance.
• $4.

Retail investors using the popular trading app Robinhood have not driven the market's recent rally, and in fact, their top stock picks have had lower returns, according to a recent analysis by Barclays.

Barclays used Robintrack data to analyze customer holdings and compared the top stock picks and their closing prices.

The analysis found that in aggregate, there is no clear relationship between Robinhood customers adding shares and S&P 500 index performance, according to the Friday note.

"That by itself casts doubt on the idea that retail holdings are the cause of market returns," wrote analyst Ryan Preclaw.

Since the market bottomed in March amid the coronavirus meltdown, retail traders $4 via zero-fee brokers such as Robinhood, Charles Schwab, and TD Ameritrade. That's fueled a popular narrative that new retail investors are driving the stock market's recent rally.

Read more: $4

Robinhood has added more than 3 million funded accounts this year through May, the company said. In the same timeframe, stocks plunged into the fastest bear market on record and began a swift recovery.

Some of the most popular stocks on Robinhood have been at the forefront of the market's rally from March lows. For example, shares of $4 have surged roughly 45% since March, outperforming the S&P 500. At the same time, Amazon has seen its Robinhood ownership nearly double, according to Barclays.

Still, Preclaw said that correlation does note equal causation. "Just because two things happen at the same time doesn't mean one causes the other," he wrote.

Shares of $4, the company that in $4, has been one of the worst performers in the S&P 500 this year, while its Robinhood usership has increased sixfold, said Preclaw.

Read more: $4

Using its dataset of Robinhood holdings, Barclays found that there is actually a negative relationship between Robinhood ownership and stock price performance.

"The more Robinhood customers add the stock to their portfolios (measure either by simple count, or percentage change), the worse the return of that stock at the same time," said Preclaw.

This further supports the idea that Robinhood traders are not behind the market's recent rally.

"While we would not view these results as truly causal—we are not using instruments to control for confounding—we do see this as compelling correlational evidence that Robinhood investors are not systematically pushing up stock prices," said Preclaw.

Read more: $4