Younger retail investors are driving into the market to pick up stocks that have been beaten down, while more experienced retail investors are pulling back, according to research.
Vanda Research said in a weekly update that retail investors have purchased equity every day this year. On Tuesday, the S&P 500 finished down by 1.2% and the Nasdaq fell by 2%.
The research firm said that retail investors were active during the last two days of the week. After plunging 1,115 points on Monday, the Dow Jones Industrial Average rebounded and finished higher.
Vanda senior strategist Ben Onatibia and head of data Giacomo Pierantoni wrote that there have been signs of retail capitulation. They said retail investors sold the two most popular tech stocks on Thursday and Friday.
They said that levered tech exchange traded funds like TQQQ and SOXL enjoyed the largest retail inflow on record. FAAMG is a reference to mega-cap tech companies.
One possible explanation is that we are talking about two different sets of retail investors. The analysts said that those who have been in the market for a few quarters are capitulating in the most widely held stocks.
Retail investors are joining the market because of lower valuations. They said that the market is more likely to buy products linked to the stock exchange.
Retail investors have shown reluctance to buy the dip in some risky areas of the market such as SPACs, which have seen very little demand from such investors.
The research firm collected data from the Wall Street Bets forum.
For the first time since the beginning of the Pandemic, mentions to put options have overtaken references to calls, suggesting that the crowd is throwing in the towel.
The monthly growth on new accounts was 233,000 in December, up from an average of 133,000 from June to October.
The S&P 500 was 9.2% below its most recent high, and the Nasdaq was close to a 20% drop needed for a bear market.
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