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Individual investors retreat from markets after show-stopping start to 2021
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Individual investors kicked off 2021 at a sprinter’s pace. Now, they are finally showing signs of fatigue.
Trading activity among nonprofessional investors has slowed in recent weeks after a blockbuster start to the year, with the group plowing less money into everything from U.S. stocks to bullish call options. Daily average trades for at least two online brokerages have edged down from their 2021 highs. And across the industry, traffic to brokerage websites, as well as the amount of time spent on them, has fallen.
The decline in enthusiasm marks a sharp reversal from just a few months ago, when individual investors’ frenetic activity took center stage in financial markets. As shares of “meme stocks” soared in January, millions of small investors piled in, kicking an already robust retail-investing trend into overdrive. In a mania unlike anything market observers had ever seen, individual investors sent stocks like GameStop Corp. GME 0.86% soaring, pushing brokerage platforms to the top of app-store rankings. Trading volume surged so much that many brokerages struggled to keep their platforms smoothly running.
Driving the recent pullback, individual investors and analysts say, is a series of factors, including concerns about the volatility among growth stocks—a group in which small investors tend to be heavily invested. Since Feb. 12, when the technology-heavy Nasdaq Composite hit its most recent record, individual-investor favorites including Tesla Inc., NIO Inc. and Apple Inc. have each fallen more than 9%.
“Like any investor, you’re not going to add fresh money to a market that doesn’t have a clear catalyst to drive stocks 5% to 10% higher,” said Viraj Patel, global macro strategist at Vanda Research. “Retail investors have gone into hibernation in the past couple weeks.”
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The broader S&P 500, meanwhile, has continued to churn higher and ended last week at a record, up 7% in 2021. That is largely thanks to a rally in shares of cyclical companies in the financial, industrial and energy sectors that tend to outperform when the economy rebounds—but which historically have been less popular with individual investors.
Since mid-February, the average nonprofessional investor has underperformed the S&P 500 by about 10%, Vanda Research’s flow tracker VandaTrack estimates, a lag the firm believes has contributed to the retreat. To try to offset their losses, individual investors in March rotated into more economically sensitive companies including Boeing Co. , Starbucks Corp. and JPMorgan Chase & Co, VandaTrack data show.
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Though few analysts expected the late-January trading frenzy to last forever, many anticipated individual-investor interest would remain heightened throughout the spring, especially after President Biden signed the latest stimulus package—which included $1,400 in direct payments to Americans—into law in March. Many expected the checks would fuel a buying spree and surpass previous upticks following the two prior stimulus checks.