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Individuals investing on their own in stocks poured cash into the U.S. stock market throughout the COVID era, but have now slowed the flow to a trickle, the Financial Times reported.
Retail investors sent $17 billion into the markets in March, $11 billion in April, but only $2.4 billion during May’s first 10 days.
In the past, individuals were strong buyers when markets dropped “but that activity has either moved [elsewhere] or gotten a lot more cautious because they have been punished multiple times this year,” Max Gokhman, chief investment officer at Alphatrai, told the FT.
The average individual investor’s portfolio has given up 28 percent of its value this year, according to Vanda Research, which found the outlook among retail investors to be “extremely bearish.”
More than half the individual traders responding to a Charles Schwab survey expressed pessimism about the markets for this year’s second half, with 20 percent citing inflation as their chief worry.
The value of investment services companies also has declined with stock values.
Schwab’s share price has lost 23 percent so far this year, Interactive Brokers 34 percent, and Robinhood, with its mission to “democratize finance,” has seen its stock price cut in half.
Retail investors dabbled in options as well as stocks, but also have pulled out of that market.
In April, small trades made up just 32 percent of options activity, the smallest proportion in two years, according to the Options Clearing Corp.
Many individuals held margin accounts during the heyday, which allowed them to borrow from their brokerages to play the markets.
However, margin activity has slowed with everything else.
“This leads to less dry powder for [individuals] to buy dips,” JP Morgan analyst Peng Cheng told the FT. “Their favorite tech stocks have suffered heavily, so they don’t have the same [profits] to use to keep buying.
“Retail traders…trading behavior is probably going to stay lower for some time,” he said.