Retail Investors Buy On The Cheap
The Nasdaq Composite Index, which includes the tech stocks that drove the market's ten-year uptrend, has decreased by 21% in 2022. Shares of Google, META and Amazon.com have all seen double-digit drops as a result of rising interest rates and pessimistic investor sentiment on their growth prospects.
- However, many of those stocks continue to be the most popular among individual investors who claim to be optimistic about a recovery and anticipate these corporations to keep driving the economy
- For many, it has been a successful wager. Recently, tech companies have recovered in part due to investor expectations for a more gradual path of interest rate increases in the months to come
Riskier areas of the market have drawn the attention of other investors. After ETFs tracking the S&P 500 and Nasdaq-100 indexes, leveraged exchange-traded funds tracking technology have been the third and fourth most popular ETFs for individual investors to purchase this year. These funds enable investors to place accelerated bets and potentially double the daily return of an index or stock.
- Stock options have also become increasingly common on Main Street as more individual investors began to execute derivatives trades
- According to Options Clearing Corp., a record 39 million options contracts were traded daily on average this year, up 35% from 2020
- Retail investors represent more than 25% of all options trading activity, but most of them are playing a losing game as they lack access to more sophisticated tactics
Non-U.S. Investors Also Pile Into U.S.-Stocks
Investment managers invested heavily in North American equities funds for three consecutive months, according to data from the Investment Association, a trade group for investment managers, up until April.
- Managers put £241 million into US equities funds in April, while UK funds lost £689 million during the same period.
- The data shows that during the previous six years, British retail investors have withdrawn assets from UK equities funds in favor of US and international investing strategies
- Repeating the errors that have been committed before, some retail investors guided their investments with vision rather than data
- The uptick in interest rates had a considerable effect on many technology stocks as investors shifted towards shorter duration investments
- The current inflationary climate may suggest that markets may push higher in the coming weeks as the Fed's measures effectively take off steam from markets
- We're still cautious and are not deploying any cash for now
Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.