Last year, a number of new records were set, and today, we take a look at some of the top trading trends from 2024.
Markets rallied to new all-time highs
As interest rates fell, markets around the world rallied. Last year was a good year for stock investors in many countries, with markets hitting new all-time highs, including in the Japanese market, which had taken more than three decades to recover from highs set in 1990.
But global markets were also driven by consumer spending and earnings recoveries – which were strongest in companies exposed to spending on artificial intelligence (AI) – as we discussed in our recent macro outlook. That helps to explain the outperformance of the Nasdaq-100® and U.S. large-cap indexes, generally.
Chart 1: Global indexes rallied with U.S. large caps leading
ETFs saw record inflows
The U.S. exchange-traded funds (ETF) industry also saw record inflows in 2024, with creations adding to more than $1 trillion for the first time ever.
That, combined with the positive returns (as noted above), helped propel U.S. ETF assets to end the year with more than $10 trillion in AUM.
Most new ETFs are active funds
ETF inflows were more than double active mutual fund outflows of $450 million. However, assuming that is the same as an active-to-passive investment shift is wrong.
As data shows, the majority of new ETF launches are actively managed portfolios, and inflows into active ETFs are represented 28% of all ETF inflows.
Chart 2: Active ETFs dominate new listings and received overt 28% of ETF inflows
Not all ETFs hold U.S. stocks
However, you can’t compare this directly with U.S. stock market capitalization (which ended the year at almost $72 trillion).
That’s because not all U.S. ETFs hold U.S. stocks. In fact, the U.S. ETF AUM includes:
- Bond ETFs, which add up to $1.8 trillion (or 17.3%).
- International stocks, which add up to $1.5 trillion (or 14.8%).
- Commodities and currencies (including Crypto ETFs), which add to $286 billion (or 2.75%).
Chart 3: ETP assets under management continue to trend higher
Looking for the most popular ETFs
It’s also interesting to see what specific ETFs were the most popular in 2024.
In the table below, we look at ETFs that saw the largest flows and change in share of all ETF trading (the last two columns in Chart 4). We rank by each of those factors, then sort by the combined rank below. It shows that investors:
- Were diversified, with strong activity in stock, bond and currency ETFs.
- Bought U.S. large cap, with most of the positive net flows in ETFs related to Nasdaq-100® or S&P 500.
- Sold bonds, with most of the negative net flows in ETFs related to bonds.
- Rotated into the new Bitcoin ETFs, making IBIT, one of the newly approved Bitcoin ETFs, the fastest ETF to $50 billion AUM ever.
Chart 4: Top ETFs ranked by trading and flows
Volumes jumped again!
Although quarterly volumes didn’t hit the record set during the meme stock craze in 2020, we have seen a consistent rise in volumes (ADV) since the initial jump when Covid started, just after retail investors received Stimulus checks and realized trading was now commission-free. In Q4 of 2024, market wide ADV averaged more than 13 billion shares per day.
Higher ADV driven by low priced stocks
However, as we see from the data, most of the recent increase in top-line ADV is due to growth in trading of sub-$1 stocks (green bars). In fact, their share of trading ADV has consistently increased since 2017.
Of course, because these stocks have low prices, they trade a lot more shares than they trade in value. In fact, in Q4 of 2024, sub-$1 stocks made up:
- 16% of volume (ADV) traded.
- Just 0.1% of value traded.
Sub-$1 stocks trade differently, too. On average, 60% of their trading occurs off-exchange, and 18% of shares traded “overnight” (from just after market close to right before market open).
Higher-priced stock ADV is falling
Interestingly, trading in stocks with prices above $5 has actually been essentially unchanged. That’s despite the number of high-profile stock splits in recent years in stocks like AMZN, GOOG and NVDA. In fact, we estimate 2024 forward splits have added 479 million shares a day in additional volumes during the year – meaning higher priced stocks activity has actually been falling.
Chart 5: Increased trading in low priced symbols pushing market wide volumes higher
Off-exchange trading hit new records (over 50%)!
Fragmentation has been increasing for decades. In 2008, the top three exchanges represented nearly 69% of all equity volume traded.
Over the same time, off-exchange market share has consistently gained. Clearly, U.S. market economics favor fragmentation, and lean toward off-exchange trading. In 2024, off exchange trading was more than 50% of all ADV on a total of 37 days.
Ironically, it wasn’t that long ago, that an academic posited that 50% off exchange would be a tipping point critical to market quality – where there was enough competition and incentive to have an NBBO, that the NBBO was actually a meaningful benchmark to protect investors.
Chart 6: Volume traded off-exchange continues to grow despite new exchange entrants
Options trading saw even stronger growth
In the past eight years, options trading has grown even faster than stock trading. Options volumes have increased 317%, compared to stock volumes that have only gone up 221%. One reason for the growth of options trading is the increasing use of options in managed portfolios – like many of the ETFs with embedded options hedges we discussed here. Not surprisingly then, the composition of options trading has changed as well in the past few years, with ETF options growing the most.
However, index options ADVs have also more than doubled. A number of factors may be driving this, including:
- Increased demand for broad market hedging.
- Tax advantages of trading index options (which qualify for 60/40 long-term/short-term capital gains tax treatment).
- Also, the growth of shorter-dated options that need to roll more frequently.
Options on the Nasdaq-100 Index® (NDX®), with its exposure to AI companies, saw ADVs grow 39% year-over-year in 2024, building on an already record year in 2023.
Chart 7: Options ADVs by underlying
The data suggests retail investors are an increasing share of options trading, too. Our estimates, consistent with those in some academic studies, show that retail options ADVs grew 13% YoY in 2024, have over tripled since 2019, and now make up over 30% of the options market.
It’s hard to compare stocks and options volumes
Some will say that options now trade more value each day than stocks. However, that’s a little misleading.
For a start, we have shown that most options are traded with delta well below 50%, meaning the theoretical impact on the stock market from hedging is well below one-for-one.
In addition, because options expire, traders need to “roll” positions each quarter, month, or week – just to maintain exposures or hedges – something we see in the way open interest changes (Chart 4 here). The increased adoption of shorter-dated weekly options means that expiry trading happens more frequently, which has added significantly to roll and expiry date volumes.
Households now have highest exposure to equities in past 80 years
We’ve previously noted that over the long term, stocks tend to outperform other assets that households own, including bonds and housing. So, the fact that data shows household ownership of stocks is at the highest level in over 80 years should be good for the financial security of many more Americans heading toward retirement.
Chart 8: Retail ownership of stocks in the U.S. also at highs
U.S. exceptionalism continues
The good news is that the U.S. stock and options markets continue to grow. That helps U.S. households grow wealth and adds to their financial independence. It should also help U.S. companies finance the growth and innovation that has been helping the market outperform in 2024.
That, in turn, boosts investment, employment and the economy.
And that’s how efficient markets can be good for everyone.
