The S&P 500(SNPINDEX: ^GSPC), the Dow Jones Industrial Average(DJINDICES: ^DJI), and the Nasdaq Composite(NASDAQINDEX: ^IXIC) indexes have each recorded an all-time high this year. But they are currently in the midst of a sell-off that might leave investors feeling uneasy.
Considering we are in a bull market, any short-term dip will likely be a buying opportunity. Interactive Brokers Group(NASDAQ: IBKR) is one of the world's largest online brokerages, offering thousands of securities across stock, options, and futures markets. The company just reported its financial results for the first quarter of 2024 (ended March 31), and some of its internal metrics highlight a growing positive sentiment among investors.
I'll highlight one metric in particular that really speaks to the bullish nature of investors right now.
Interactive Brokers enjoyed a bumper first quarter
The stock market opened 2024 with a bang. The S&P 500 index logged a gain of 10.8% through the first three months with very low volatility. Rising stock prices tend to grab people's attention, so a wave of new customers flocked to Interactive's platform during the first quarter, with total accounts soaring by 25% year over year to 2.75 million.
Interactive's client equity also surged 36% to an all-time high of $465.9 billion thanks to a mix of those new customers and higher stock prices.
However, low-volatility environments are usually bad news for brokerages because they generate revenue through commissions every time investors buy or sell securities. When volatility is low, that can lead to flat commission income even if the stock market is soaring.
As a result, the company saw a 16% year-over-year drop in volume from stock trading specifically, and a 3% drop in futures trading volume. However, investors ratcheted up their bets in the higher-risk options market by 24%, which was enough to drive a 6% year-over-year increase in the company's overall commission revenue.
Interactive's DARTs metric (daily average revenue trades) grew by 14% to 2.35 million, which meant the first quarter delivered the most trading activity on the company's platform overall since the beginning of 2022.
While all of the above metrics suggest investors are more bullish than they've been in years, another data point paints an even clearer picture.
Investors are increasingly borrowing money to buy stocks
Nothing highlights the confidence of investors quite like their appetite to borrow money to buy stocks and other financial assets. It can amplify their returns, but risk is always present (as the last few weeks have shown), and adding leverage can also amplify losses.
During the first quarter, Interactive's client-margin loans hit $51.2 billion. It was a whopping 30% increase from the year-ago period, and it also marked the highest level since the end of 2021.
Interest rates are much higher today compared to their historic lows at the end of 2021, which makes the current margin level even more significant as a sentiment indicator. It's also great for Interactive, because the company is pulling in record amounts of interest income.
Interactive generated $1.2 billion in revenue during the first quarter, and interest income accounted for $747 million of that total -- far more than the $456 million attributable to commissions and other fees.
The company earns interest income not only from margin loans, but also on the cash it holds in custody for its clients, which it stores in interest-bearing bank accounts.
The stock market could end the year at record highs
Everyday investors aren't the only ones feeling confident about the stock market's prospects this year. Here are the 2024 price targets for the benchmark S&P 500 index from some of Wall Street's leading investment firms:
- Fundstrat (Tom Lee): 5,700
- Oppenheimer Asset Management: 5,500
- Bank of America: 5,400
- Yardeni Research: 5,400
- Barclays: 5,300
- Goldman Sachs: 5,200
According to Morningstar and MarketWatch, the average S&P 500 price target among analysts is 5,117. That's around 3% above where the index is trading right now, but the most bullish forecast (5,700) implies investors could see an upside of almost 15% over the next eight months.
A mixture of strong corporate earnings and anticipated interest-rate cuts from the Federal Reserve are among the biggest reasons for the bullish tone on Wall Street.
Therefore, investors might want to swoop in and buy the recent stock market dip.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Goldman Sachs Group. The Motley Fool recommends Barclays Plc and Interactive Brokers Group. The Motley Fool has a disclosure policy.
