Retail Investors Haven't Backed Off
Individual investors were unfazed, defying some analysts' predictions that they would pull out once U.S. stocks stopped rising. Even while individuals went back to work, travelled again, and spent money outside, so-called retail investors opened brokerage accounts and traded at a pace close to the year's highs at the end of 2021. In 2022, retail investors have been net buyers of U.S. equities, even as markets fell.
"Retail investors have leaned into this year’s market gyrations, pumping cash into US equities even as share prices have tumbled from the historic highs recorded at the start of January."
"Smaller investors have been net buyers of US equities and exchange traded funds every trading day this month, according to data from VandaTrack. The scale of daily inflows stood above the 2021 average on all but two days since the start of the year." by Joshua Oliver and Madison Darbyshire for the FT
Volatility And Shift To Other Assets
However, what changed in the last quarter was what retail investors were trading. Retail investors shied away from meme stocks, opting instead for more conservative exchange-traded funds. Analysts and investors believe there are various causes for the shift. Long periods of volatility and price pressures at the end of 2021 might have frightened investors.
- A lack of progress in favourites like GameStop and AMC probably hurt sentiment as well
- Sentiment surveys have also revealed that the group has a lower level of confidence in the stock market
- At the same time, riskier asset classes such as NFTs and cryptocurrencies have also fallen as risk appetite wanes in the face or rising rates
- The pandemic has brought in a large number of new investors to the markets and these piled into popular tech stocks and ETFs as the pandemic unfolded
- Stimulus from central banks and governments helped create a speculative environment where risky bets paid off
- Yet, retail investors are now moving away from more speculative names and moving back into conventional stocks and ETFs
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