Money-Losing Retail Crowd Keeps Buying Stocks as Market Teeters

(Bloomberg) — In a stock market battered by trade turmoil and growing fears of an economic slowdown, retail investors are doubling down, undeterred as their losses mount.

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Individual traders pumped more than $12 billion into US equities in the week ending March 19, retail-trading data from JPMorgan Chase & Co. showed. The pace of buying was significantly higher than the group’s 12-month average, according to Emma Wu, a global equity derivatives strategist at the bank.

Market watchers keep a close eye on retail traders as they are often the last to cut their exposure to stocks, so the latest bout of aggressive buying from mom-and-pop investors may suggest that equities haven’t found the bottom yet.

The recent behavior of individual investors is characteristic of a “down” year in the stock market, Wu said. It was also seen in 2022, she noted. That’s when the equity benchmark sank 19%, the only down year of the past six. “This is a hallmark of their ‘buy-the-dip’ mentality,” Wu said.

Wu estimates that the group is now nursing a 7% loss for the year, while the S&P 500 has dropped 3.7%.

When the broader market started to sell off sharply in late February, retail traders remained avid buyers, marking a sharp divergence from institutional buyers, who rotated out of US stocks at a record pace.

Trading data from Bank of America Corp. showed its private clients have been net buyers of US equities for the past 14 weeks, while institutional clients were net buyers for the first time in three weeks, and hedge funds were net sellers for a fifth-straight week.

The signal from the retail crowd punctuates the increasingly bearish view Wall Street is taking. Strategists from Goldman Sachs Group Inc., Citigroup Inc. and HSBC Holdings Plc all reined in their expectations for US equities in the past two weeks. Morgan Stanley’s Michael Wilson told Bloomberg Television on Thursday that there would be no new highs for the US stock market in the first half of the year.

There are signs that individual investor sentiment has weakened in recent weeks. A widely followed measure from the American Association of Individual Investors showed bullish views were below the 20% mark for three straight weeks, turning up only slightly in the week ended March 19.