Retail investors snapped up stock-focused ETFs and megacap technology companies amid the worst selloff for the US equity market since the Covid-19 pandemic roiled the globe.
(Bloomberg) — Retail investors snapped up stock-focused ETFs and megacap technology companies amid the worst selloff for the US equity market since the Covid-19 pandemic roiled the globe.
Individuals flocked to many of their favorite assets, including the SPDR S&P 500 exchange-traded fund and Apple Inc., as they plowed more than $2 billion into the market in the year’s second-largest day of retail net flows, data compiled by Vanda Research show. Even with the flurry of dip buying — which has been the calling card for small traders — there were signs of a weakening trend in demand.
“Multiple capitulation indicators are now flashing a warning sign,” Vanda analysts led by Marco Iachini, which track retail-trading flows, wrote. “That means the likelihood of retail capitulation increases significantly near-term should equities re-test this year’s June lows.”
Stocks have been hammered, with the S&P 500 heading toward its worst year since the depths of the 2008 global financial crisis as red-hot inflation and central banks set on hiking rates raise concerns over a recession. Hotter-than-expected US consumer pricing data on Tuesday delivered a 4.3% blow to the S&P 500 as the tech-heavy Nasdaq 100 tumbled 5.5% in its worst day since March 2020.
Retail investor demand for US stocks was proportional to the size of the market’s slide, Vanda said, with the SPY drawing $395 million in mom-and-pop money for the biggest flood of one-day buying since July 2021. That demand contrasts with professional investors broadly pulling money from the ETF, as nearly $6 billion left the fund Tuesday in the largest single-day decrease since April, Bloomberg data show.
The retail cohort also snapped up roughly $100 million of Apple and Advanced Micro Devices Inc. each, while Tesla Inc. and a pair of ETFs that are tied to the Nasdaq 100 rounded out the six-most bought assets, according to Vanda. The buy-the-dip mentality came as the iPhone maker sank 5.9% in its worst day since September 2020.
Fidelity users were active on Wednesday before the US stock market open, buying shares of Apple, Nvidia Corp., and Amazon.com Inc., data provided by the broker show. Buy orders for the three stocks outpaced those to sell shares at more than 3:1 ratios.
With net buying in-line with what’s been seen during similar market routs this year, signs are pointing to a further drop in purchases over the coming weeks. Retail inflows have been stuck on a downward trend over the longer-term as the average individual trader sits on more than 25% losses this year, Vanda data show.
Those losses mean the risk of capitulation has been mounting, however that might be good for the market, according to the Vanda analysts. The capitulation of retail investors is likely to draw meaningful buying from institutions, “opening a door for a more sustainable rebound.”
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