Pedestrians in Wall Street, New York
Hefty inflows of cash from amateur traders were a main driver of the run up in stock prices last year, according to analysts © Spencer Platt/Getty Images

Retail investors have leaned into this year’s market gyrations, pumping cash into US equities even as share prices have tumbled from the historic highs recorded at the start of January.

Smaller investors have been net buyers of US equities and exchange traded funds every trading day this month, according to data from VandaTrack. The scale of daily inflows stood above the 2021 average on all but two days since the start of the year.

The inflows have come even as Wall Street’s S&P 500 has fallen 9.7 per cent from the record high reached in early January. High flyers favoured by amateur traders, such as electric carmaker Tesla, have fared even worse.

Hefty inflows of cash from amateur traders were a main driver of the run up in stock prices last year, according to analysts, who warned that retail investors taking flight could spell trouble for the wider markets.

Day traders’ sway was on display on Monday, when markets tumbled out of the gate before staging a furious rebound rally. Retail investors sold heavily in the morning, with net selling of $1.5bn by midday, more than 20 per cent of net selling for the entire market, according to JPMorgan Chase data.

Column chart of net daily inflows to US equities and ETFs showing retail investors keep buying US stocks despite sell-offs

However, retail quickly bought the dip, purchasing $1.3bn in equities in the three-and-a-half hours before markets closed — a striking buying spree, analysts said, considering the volatility of the day. Nonetheless, other market participants, such as institutional investors and trend-following funds, played a larger role in the intraday swing, with total net buying volume equating to $10bn, according to JPMorgan.

Retail buying on Wednesday — another tumultuous day for markets — was focused on large tech companies and ETFs, according to Vanda analysts.

“Clients still seem to be keeping the faith with the tech sector,” said David Jones, chief market strategist at trading platform More than 70 per cent of traders with an open position on the Nasdaq were betting on the tech-heavy index to rise, he added.

While demand from retail has held up, there are signs of a retreat from the height of exuberant risk-taking last year, that pushed investors into highly volatile shares.

Ben Onatibia, senior strategist at Vanda, said retail investors had been reluctant to buy the dip in “risky pockets of the equity market”, noting a lack of demand for meme stocks and companies in Cathie Wood’s Ark Innovation fund portfolio, which is down 27 per cent this year.

Cryptocurrency markets, which have also benefited from an influx of retail traders willing to take a punt on high-risk tokens, have plunged alongside equities. “The recent weakness in crypto markets, to the extent that is driven by retail investors, is also consistent with waning risk appetite among retail investors,” said Nikolaos Panigirtzoglou, cross-asset research analyst at JPMorgan, in a note last week.

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