401k Trading Goes Haywire With Market Drop

Participants behaved badly

401k, retirement, behavior, market crashStock up on canned goods and head for the hills.

Update: A correction was made to the last paragraph regarding fixed income. 

We thought 401k participants were reacting better to market shocks and global news (which is to say not at all)—we were wrong.

After relatively light trading in the face of such newsy events as Brexit, the Trump inauguration and possible North Korea-driven nuclear Armageddon, workers reversed course Monday. The stock market drop caused almost 12 times the “normal” level of trading activity, Alight Solutions reported.

The last time the Alight Solutions 401(k) Index recorded this level of trading was August 2011, coinciding with another massive S&P 500 drop.

“We typically see a spike in trading activity when the market corrects, and Monday was no exception,” explained Rob Austin, head of research at Alight Solutions. “Many investors who spent the weekend hearing about how the stock market posted its worst week in years were quick to make changes and sell some of their equities.”

401k trading highlights or lowlights (depending on one’s point of view) for Feb. 2 through Feb. 6:

Friday, February 2, 2018

  • The S&P 500 dropped by a little more than 2 percent for the day;
  • Net trading activity was 0.058 percent of balances, and close to three times the trading activity of a typical day;
  • Nearly all of the trades were from equity funds and into fixed-income instruments (such as money market and stable value funds).

Monday, February 5, 2018

  • The S&P 500 decreased by over 4 percent—its biggest single-day drop since August 2011;
  • The net trading activity was almost 12 times the trading activity of a typical day at 0.176 percent of balances;
  • Throughout the more than 20-year history of the 401k Index, there have been only a handful of days with a higher average of daily activity;
  • The last time the 401k Index had a trading day this high was August 2011;
  • Trading activity was almost exclusively from equities to fixed income.

Tuesday, February 6, 2018

  • The S&P 500 posted a gain of 1.74 percent;
  • The net trading activity was 0.068 percent of balances—over four times the trading activity of a typical day;
  • The majority of the trades were from equities to fixed income.

February’s trading activity is in sharp contrast to January when the majority of 401k trades were from fixed income to equities.

In January, only four of the 21 trading days saw 401k investors favoring fixed income. All four of the trading days so far in February have had more money going to fixed income than equities.

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