An trader works on the New York Stock Exchange's floor in New York City, New York. March 3, 2020. Andrew Kelly/Reuters
JPMorgan stated in a note that retail investors were boosted by Monday's stock market decline.
On Monday, $11 billion was withdrawn from equity ETFs due to the Evergrande debt crisis.
JPMorgan stated that the outflow occurred on a day of low activity and was therefore inconsistent with the buy–the-dip behavior.
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JPMorgan stated in a Wednesday note that the Evergrande-induced stock-market decline earlier in the week had jolted confidence at the buy-the dip trade.
On Monday, $11 billion was withdrawn from equity ETFs. This occurred on a day when stocks were down as high as 3%. JPMorgan stated that the outflow occurred on a day of low stocks and was therefore inconsistent with buy-the-dip behaviour.
According to JPMorgan, Monday's sharp outflow was the largest of the year, excluding the days with futures expiry dates and quarter-end options. JPMorgan stated that momentum traders may have been a key factor in the stock market correction of 5% to a breakdown in some indicators. However, retail investors played an important role as well.
According to JPMorgan, net inflows from retail investors into equities reached a peak of $16 billion in July. They then fell to $15 billion in august and continued to decline in September.
The note stated that "we would need to see greater inflows into equity ETFs now and in the days ahead to be able say that retail investors' impulse to invest in equities and their past buy-the-dip behaviour remain intact."
Retail investors' confidence has likely risen in recent days due to Monday's stock market decline. Despite a sharp decline below the technical 50-day average earlier in week, the S&P 500 regained that level on Thursday and jumped more than 1%. The index is now just 1% away of recouping all losses from Monday's fall.
JPMorgan
