A pullback is shaping up, as investors hunt fresh rationale to keep buying and excitement fades over the U.S.-China tariff pause. Retail will be in focus with data and Walmart earnings ahead.
Timing stock market ups-and-downs is a tricky feat, but congratulations are in order for retail investors, who appear to have done well in recent weeks by tearing a page out of Warren Buffett’s “be-greedy-when-others-are-fearful” playbook.
“The buy-the-dip strategy in early April has clearly paid off,” said a team of JPMorgan strategists led by Emma Wu. “We estimate retail investors’ portfolio is up 15.1% since April 8, closely aligning with the market performance of +15.8%.”
Investors bought $50 billion in stocks as the market bounced from the S&P 500’s SPX 52-week low of 4982.77 reached April 8, said the JPMorgan team.
“Notably, their buy-the-dip strategy and gradual buying during the subsequent rally (with a reduced pace) has historically been profitable,” said the strategists. That was the situation in 2020: retail buyers made some 31% from the March low to the June high, basically doubling the market performance, the JPMorgan said.
Retail investors were the main driver behind the market rally in the last week of April, with institutional activity subdued and low positioning by momentum-trading commodity trading advisers. Their market share reached 36% in late April, versus a year-to-date average of 21% and long-term share of 12%.
As for what that savvy bunch of traders has been up to lately, JPMorgan says a shift may be under way.
Wu and her colleagues noted that Monday marked the first time they’ve seen profit-taking flow — $555 million — since the market recovery, with $2 billion profits taken on options and the “largest outflow in history” for Nvidia NVDA, to the tune of $894 million.
After Tuesday’s softer-than-forecast inflation numbers, retail investors came back in, though at a slower pace.
Inflows in the latest week were entirely driven by exchange-traded funds, chiefly broad market ones such as the SPDR S&P 500 ETF Trust SPY, said Wu and colleagues. They also saw a sector rotation: value to growth, small cap to large cap, healthcare to industrials, gold and silver to base metals, while demand for international equities remained a theme.
