Retail trading in U.S. stocks is starting to pick up again after months of slowdown, data showed, as the hype around artificial intelligence (AI) and a tamer interest-rate outlook prove hard to resist.
U.S. inflows from individual traders hit their highest in three months last week, averaging at $1.36 billion per day, Vanda Research said in a note Thursday.
After buying U.S. stocks at a record pace in the first quarter of 2023, retail investors had retreated to the sidelines amid turmoil in the banking sector, high interest rates and fears of a recession.
But the passage of a U.S. debt ceiling deal last week helped stave off a devastating default and empowered markets to break out of a range and move higher.
"Following the debt ceiling agreement, risk-on sentiment seemed to have returned to the retail investor base this past week as we witnessed bullish flows across the ETF, single stock, and options space, mainly benefiting technology names," J.P. Morgan analyst Peng Cheng said.
Net retail purchases over the past week were the highest in Tesla, Apple, Advanced Micro Devices and Nvidia, in that order, Vanda data showed.
Retail trading accounted for up to 17% of the U.S. total this week, the highest in a month and up from 14% in the prior week, according to J.P.Morgan data.
That coincides with the benchmark S&P 500 climbing 20% above its bear market low in October and Wall Street's fear gauge, the CBOE Volatility index, slumping to its lowest since before the pandemic.
A drastic uptick in retail buying has likely helped fuel a short squeeze in small-caps as well, Vanda Research analysts said.
The small-cap index Russell 2000 has advanced 7.5% in June, well ahead of the benchmark S&P 500's 2.7% gain.
"It will take more than just a short squeeze for buying to sustain at these levels, especially as retail investors have only just started to rebuild conviction in the markets," the Vanda analysts added.
In Thursday's session, Carvana Co became the second-most traded stock by retail traders, J.P. Morgan data showed, following the used-car retailer's upbeat second-quarter forecast.
GameStop, which was at the heart of the meme-stock frenzy of 2021, slumped 18% on Thursday after the surprise exit of a CEO fanned concerns about the videogame retailer's turnaround.
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