Time to Buy: Retail investors take a dive when stocks falter

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, USA, January 10, 2022. REUTERS / Brendan McDermid / File Photo

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NEW YORK, Jan 12 (Reuters) – US retail investors have been falling buyers so far in 2022, grabbing stocks that funds lost from their portfolios in light of a more aggressive Federal Reserve, but with a focus on quality stocks rather than speculative names.

Growth and tech stocks, which typically generate lower yields in higher interest rate environments, have had a rough start to the year as large investors respond to expectations that the Fed will raise interest rates up to four times in 2022. driving short-term Treasury yields to nearly two-year highs.

However, the weakness in the shares was met with retail investors seeing buying opportunities. After falling nearly 3% earlier in the day on Monday, the tech-rich Nasdaq recouped all of the day’s losses in afternoon trading and gained again on Tuesday. to know more

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“Buy the dip has been successful for how many years – 8 or 10 years now – and I think people still see opportunities when looking for potential investments and the US stock market is still the best game in town,” said JJ Kinahan, chief market. strategist at retail brokerage TD Ameritrade, which is owned by Charles Schwab Corp.

TD Ameritrade customers returned to buy this month after being net sellers in December, with heavy selling in the last week of the year as Omicron’s COVID-19 spike started to hit hard, Kinahan said.

The busiest day this year for Apex Clearing, which processes deals for brokers including SoFi Technologies Inc (SOFI.O) and Firsttrade, was January 5, when the S&P 500 (.SPX) fell roughly 2% , with a buy-to-sell ratio of 1.91, a company spokesman said. The S&P suffered a similar decline the next day and retail investors were net buyers again, he said.

Individual investors have focused on stocks such as Tesla Inc (TSLA.O) and Apple Inc (AAPL.O), as well as technology-focused and leveraged exchange-traded funds (ETFs), while they have been net sellers of stocks related to gaming, sports and cannabis themes, said Giacomo Pierantoni, an analyst at investment research firm Vanda.

“Retail investors continued to buy massively capitalized technology, providing a cushion, and ETFs, but they stopped buying all speculative assets,” such as cryptocurrencies and highly speculative stocks, he said.

With risk appetite still low, some of the top picks last week for TD Ameritrade’s customers were tech big names like Apple and Microsoft Inc Corp (MSFT.O), as well as blue-chips, including McDonald’s Corp. (MCD. N), Walt Disney Co (DIS.N) and AT&T Inc (TN), Kinahan said.

A GREATER FORCE

Retail investors have become a force majeure in the markets over the past couple of years as retail brokers have switched to commission-free trading and social media has made it easier for individuals, many working from home due to the pandemic, to coordinate on trading ideas. This can put them at odds with institutional investor models.

Bank of America Securities analysts said retail clients and hedge funds were buyers of US equities last week, with about $ 500 million in net purchases, as the S&P 500 fell 1.9%.

The bank’s institutional clients, meanwhile, started the year with the largest outflows since mid-January 2021.

This phenomenon was also observed on Monday, when retail investors hit their third consecutive day of buying more than $ 1 billion in shares, according to a note from JPMorgan analysts.

Monday’s net total of $ 1.07 billion in shares bought by retail was in the 93rd percentile of historical data, they said. This is in contrast to institutional investors who have been net sellers.

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Reporting by John McCrank; Additional reportage by Danilo Masoni; Editing by Megan Davies and Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principles.

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