The comprehensive rebound across asset classes has just propelled the S&P 500 index to its best monthly performance in over a year, and the hot market performance is finally catching the attention of US retail investors.
Signs indicate that retail investors who had previously made big bets on speculative companies and created so-called “meme stock” frenzy are now back – according to data from investment platform eToro and chat records on social media, they are heavily buying popular stocks in the market, such as Amazon and Nvidia; at the same time, they are also buying riskier assets, such as tech stocks that have yet to turn a profit and cryptocurrencies.
Jason Goepfert, founder and senior analyst of Sundial Capital Research, pointed out in a phone call that after economic indicators boosted overall market sentiment in recent weeks, retail investors are showing an optimistic stance and participating in this upward trend.
Goepfert noted that weak economic data reassured investors who believe that the Federal Reserve’s rate hikes will soon come to an end. This time around, retail traders initially hesitated whether or not to join the rally. However, their late arrival may further fuel the uptrend.
Market data shows that with continued expectations of interest rate cuts by the Federal Reserve next year, the S&P 500 index recorded one of its largest gains ever in November with a surge of 8.9%, marking its second-largest November gain since 1980.
The comprehensive surge across assets has also driven some of the riskiest speculative assets on the market – Bitcoin surpassed $40k early Monday morning.
US Retail Investors Rallying
According to industry data, US retail investors currently account for about 18% of daily trading volume in US stocks. A survey conducted by eToro among retail investors in September showed that 93% plan to invest equal or more funds in the stock market by the end of this year.
A survey by the American Association of Individual Investors also showed that based on closely watched bull-bear spread, retail investors’ bullish sentiment reached its highest level since July and approached its highest level since April 2021 when the US stock market was booming.
On eToro, trading volumes for stocks such as Tesla, Amazon, and Nvidia have recently surged. In November, cryptocurrency holdings on eToro’s US platform increased by 28% compared to the previous month.
Callie Cox, an investment analyst at eToro USA, said “the average trade size has significantly increased, which tells me that people feel confident enough about the future – willing to take greater risks.”
The top five most popular stocks on eToro are mostly mentioned in Reddit’s WallStreetBets forum and chat website StockTwits – Tesla remains a favorite among this group of investors while Nvidia and Meta are also highly favored.
Retail investors’ obsession with short-term call options on hot stocks was a hallmark of the “meme stock frenzy” in 2021 when it drove jaw-dropping surges in meme stocks like GameStop. Now Reddit users are encouraging each other to buy shares before GameStop announces its earnings this week.
However, Goepfert also mentioned that while retail investors are currently eager to get involved, large institutional investors seem to be questioning this rally. Some institutional investors are looking for signs that recent optimism in the market has peaked and they may be getting their needed information from retail traders’ excitement.
Peter Boockvar, author of The Boock Report wrote regarding recent data from AAII: “Strictly from a contrarian standpoint we’re now at levels where caution is warranted over shorter-term time frames. Retail investor enthusiasm is now extreme.”