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Every trading day during January, individual investors put more money into U.S. stocks than they extracted, according to data service VandaTrack, with new investments exceeding 2021’s average on all but two of the days.
Individuals are continuing to buy even as the Standard & Poor’s 500 index has declined more than 9 percent from its record high in early January, a slide that brings the market close to a correction.
Individuals taking a flyer on popular stocks such as Tesla were a main driver in last year’s record price run-up, analysts told the Financial Times. If those investors decide to pull their money out, U.S. equity markets could plunge, the FT said.
However, those individual players are shying away from SPACs, random cryptocurrencies, and meme or “me-too” stocks such as GameStop that defined 2021’s “speculative craze,” as the FT termed it.
Trading volumes in GameStop are 80 percent below the peak of the craze and trading in AMC Entertainment and other meme stocks has cratered, the FT reported.
The U.S. Federal Reserve’s pledge to raise interest rates soon has robbed individuals of their enthusiasm for unfounded speculation, the FT said.
The average stock listed in the Russell 2000 index, which emphasizes small companies, has shed 35 percent of its value from its 12-month high; in the tech-heavy NASDAQ, the figure is closer to 45 percent, according to the FT.
Virgin Galactic, Beyond Meat, and sports betting website DraftKings all gave up at least a third of their value during the last six weeks of 2021. Bitcoin’s value was cut in half from its November peak.
More recently, speculators have swarmed the options market, setting records for the purchase of equity put options, which will turn a profit when stock prices fall.
A significant number of the options are being bought and sold on the same day as gamblers try to eke profits from intraday price ticks, the FT said.
TREND FORECAST: Individual investors began playing the markets as an exciting pastime during the COVID War. Because markets kept rising, many were lulled into believing they had found an easy way to pile up money.
Prudent professional investors already are reshuffling their portfolios ahead of the Fed’s interest rate boosts and inflation’s continuing toll on the economy (see related stories in this issue). Individuals who lack market savvy or expert guidance will be left still holding stocks and losing money as they ride the markets down.