Jefferies analysts remain bullish on retail investor activity, coining the phrase "What Doesn't Kill Retail Traders, Makes Them Stronger," in their note this week.
The firm's analysis highlights the continued growth in both direct retail and the advisor channel, particularly among independent advisors.
"Following our analysis, we are more confident in the sustainability of retail activity," Jefferies states. This confidence stems from several factors, including a survey they conducted showing retail investors are becoming "both more educated and more diverse in their trading strategies."
The expansion of tradable asset classes, especially options and futures, is another positive trend. Jefferies points to increased investment in investor education, product development, and improved technology as key drivers of growing retail awareness and engagement.
This newfound sophistication extends beyond "meme stocks," according to Jefferies. "Retail investors have moved beyond meme stocks and represent a growing and attractive subset of customers for the broader markets ecosystem" they state.
Looking ahead, Jefferies anticipates continued growth in retail participation, albeit at a modest pace. They project off-exchange trading volume, a proxy for retail activity, to grow in the low-single-digit CAGR (Compound Annual Growth Rate) through 2026.
The convergence of direct retail and advisory services is another trend Jefferies sees shaping the future. "Most, if not all, traditional banks and brokerages are looking to invest grow and/or acquire additional capabilities in this market," they report. Jefferies favors full-service firms that cater to evolving client needs, offering both self-directed options and full-service advice.
Finally, the analysts see the potential for a convergence of brokerage and banking models. Firms with existing brokerage relationships have a chance to cross-sell traditional banking services. While acknowledging current challenges, Jefferies believes this convergence can help offset lower interest rates in the future.