Despite brooking the worst start to a year in decades, retail investors haven’t given up on the U.S. stock market just yet.
A few weeks ago, research from Vanda suggested retail traders had yet to completely give up on the stock market — a bearish indicator, analysts at Vanda Research had said at the time — but in the weeks since, stocks have staged a modest rebound.
And although Wednesday’s hotter-than-expected inflation data is threatening to drive stocks lower as investors brace for the possibility of a full percentage point interest rate hike by the Federal Reserve, as of Tuesday, retail traders were still buying the latest dip in stocks.
This was an example of retail traders offering “contrarian” liquidity, since institutions were generally selling on Tuesday, leaving retail traders holding the bag.
High-frequency data pointed to a surge in retail buying on Tuesday. SOURCE: Vanda Research
That being said, retail traders have increased the share of their portfolios allocated to cash, according to survey data from the American Association of Institutional Investors.
Wealthier retail investors have increased their allocations to cash during the month of June. SOURCE: Vanda Research
Whether or not retail traders’ enthusiasm for stocks continues to diminish during the coming weeks, the team at Vanda Research expects that amateur traders will shift toward buying single-stock names in the coming weeks as the second-quarter earnings reporting season begins.
But there is one single-stock name retail traders have soured on, and it’s Twitter Inc
Signs that Musk and his group are trying to get out of their commitment to buy the social-media company have caused retail traders to lose interest, and they have sold their Twitter positions as the stock has slumped.
Retail traders have apparently lost interest in Twitter. SOURCE: Vanda Research
Retail traders have already increased their allocations to cash this year, while the selloff in stocks and bonds has also naturally driven the share of their portfolios allocated to cash higher. But the team at Vanda hasn’t ruled out the possibility that mom-and-pop investors could become even more bearish on stocks by increasing their cash holdings, or becoming net sellers of equities while shifting more of their assets into money market funds.
Twitter shares rebounded Wednesday, rising 6%, as the company filed a lawsuit to try and hold Musk and his team to their agreement to either buy the company, or pay a $1 billion breakup fee. The S&P 500
Dow Jones Industrial Average
and Nasdaq Composite
were down by 0.5%, 0.7% and 0.2%.