(Bloomberg) -- Live by the meme, and die by it. That's the lesson from Morgan Stanley research about how quickly small-time investors went from world-beaters to also-rans in the post-pandemic stock market.
Using exchange and public price-feed data, a chart from the bank's trading desk estimated overall gains and losses to retail traders based on their stock flows over the last two years. While individual investors were comfortably ahead of the S&P 500 for most of 2020, when speculative equities flourished, their results fell below the benchmark a few months into 2021 and remain there.
The arc corresponds roughly with that of the meme-stock craze as well the deteriorating fortunes of stay-at-home stocks such as Peloton Interactive Inc. and Zoom Video Communications Inc., which struggled last year. Morgan Stanley didn't break down the drivers of the returns in its note.
Small investors' underperformance of the broader gauge has widened in the past couple of months, according to the data, as U.S. market leadership shifted to sectors like energy.
“Retail remains the marginal buyer, but profit/loss is slipping,” Morgan Stanley's Christopher Metli and others wrote in a report. “Seasonality will remain favorable for retail for the next few weeks. But beyond that the big risk is that retail demand will fade due to deteriorating P/L.”
Based on Morgan Stanley's estimates, retail is still in the black on trading activity over the last 24 months -- but “recent buys are likely out of the money,” the report added.
Read more: A Year's Worth of Nasdaq Tumult Gets Jammed Into Three Weeks
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