Individual investors retreat from the markets after the beginning of 2021

Individual investors started 2021 at a sprinter’s pace. Now, they are finally showing signs of fatigue.

Trading activity among non-professional investors has slowed in recent weeks, after a very successful start to the year, with the group investing less in everything from US stocks to optimistic call options. The daily trading average of at least two online brokers has dropped from its 2021 highs. And across the industry, traffic to brokerage sites, as well as time spent on them, has declined.

The drop in enthusiasm marks a sharp reversal from just a few months ago, when the frenetic activity of individual investors took center stage in the financial markets. As “meme stock” stocks soared in January, millions of small investors huddled together, driving an already robust retail investment trend. In a craze unlike anything market watchers have ever seen, individual investors submitted shares like GameStop Corp. GME 0.86% upwards, taking the brokerage platforms to the top of the ranking of app stores. Turnover has increased so much that many brokerages have struggled to keep their platforms running smoothly.

What drove the recent downturn, say individual investors and analysts, is a number of factors, including concerns about volatility among growth stocks – a group in which small investors tend to invest heavily. Since February 12, when the Nasdaq Composite reached its most recent record, the favorites of individual investors, including Tesla Inc., NIO Inc. and Apple Inc., have fallen by more than 9%.

Ticker	Safety	Last	Change	Change %
GME	GAMESTOP	191.45	+1.63	+ 0.86%
TSLA	TESLA, INC.	661.75	-6.18	-0.93%
NIO	NIO INC.	39.66	+0.68	+ 1.74%
AAPL	APPLE, INC.	123.00	+0.85	+ 0.70%

“Like any investor, you are not going to add new money to a market that does not have a clear catalyst to raise shares from 5% to 10%,” said Viraj Patel, global macro strategist at Vanda Research. “Retail investors have gone into hibernation in the past few weeks.”

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The broader S&P 500, however, continued to rise and ended last week at a record high, rising 7% in 2021. This is largely due to a recovery in cyclical stocks in the financial, industrial and energy sectors which tend to outperform when the economy recovers – but which have historically been less popular with individual investors.

Since mid-February, the average non-professional investor has underperformed the S&P 500 by about 10%, estimates Vanda Research’s flow tracker, VandaTrack, a lag that the company believes has contributed to the downturn. To try to make up for their losses, individual investors in March switched to more economically sensitive companies, including Boeing Co., Starbucks Corp. and JPMorgan Chase & Co, show VandaTrack data.

Ticker	Safety	Last	Change	Change %
BA	THE BOEING CO.	252.96	-1.76	-0.69%
SBUX	STARBUCKS CORP.	109.38	+0.11	+ 0.10%
JPM	JPMORGAN CHASE & CO.	153.71	+1.48	+ 0.97%

While few analysts expected the end-January trade frenzy to last forever, many anticipated that individual investor interest would remain high throughout the spring, especially after President Biden signed the latest stimulus package – which included $ 1,400 in direct payments to Americans – in law in March. Many expected the checks to fuel a wave of purchases and to outperform previous increases after the previous two stimulus checks.

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Instead, the increase in stimulus never came – and purchases decreased. Recently, daily net purchases of shares and funds traded on the stock exchange by individual investors reached the lowest level of the year, according to data from VandaTrack.

On March 26, individual investors bought about $ 772 million in US shares on a net basis, down 60% from the nearly $ 2 billion reached in just one day on January 29, at the height of the craze of the actions of memes. The last two times that stock purchases by individual investors were lower were on Christmas Eve and the Friday after Thanksgiving Day 2020. The two days, historically, tend to have a lower volume in the stock market. shares.

Analysts say they are taking a closer look at other metrics, including trading activity and brokerage website traffic. Charles Schwab Corp. and Interactive Brokers Group Inc. recently reported that the daily trading average dropped in March compared to its 2021 highs.

Ticker	Safety	Last	Change	Change %
SCHW	CHARLES SCHWAB	66.44	+1.26	+ 1.93%

Meanwhile, analytics firm SimilarWeb, which tracks desktop and mobile traffic to brokerage sites, found that companies across the industry experienced sharp drops in traffic in March, compared to February. Robinhood Markets Inc., for example, saw a drop of around 35% in traffic, according to SimilarWeb, whose data does not capture traffic through applications.

Charles Hornat, a 50-year-old information security expert and adjunct professor at New York University, is one of those investors who has recently been left out, as many of the growth stocks he owns have been left behind. He estimates that his portfolio has dropped about 50% since the beginning of February, largely because of his positions in companies like Tesla, Snap Inc. and the special-purpose acquisition company Churchill Capital Corp. IV.

Ticker	Safety	Last	Change	Change %
PHOTOGRAPH	SNAP, INC.	54.49	+2.20	+ 4.21%

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Hornat started trading in the fall of 2019, he said, and for a while, it looked like stocks were just going up.

“I thought, ‘This is so easy, this is amazing’, and then Covid-19 crashes and everything is reversed,” he said. “I learned in the first one up and down that [trading through a drawdown] it was something I had no experience … So, in the last few weeks, I paused and said ‘I have unrealized losses and I’m fine with that. I’m going to sit and ride this ”.

Hornat recently said he had run some small-volume negotiations with Tesla to capture movements in the shares. Other than that, he said, he believes in the companies he owns and does not plan to sell or buy.

“As there are so many unknowns, I don’t believe in doubling,” he said. However, he joked: “I think that’s when you learn about how to diversify your portfolio and things like that”.

Analysts are also monitoring activity in the options market, which recently indicated that retail investors have also retreated from optimistic positions. In general, stock call volumes have largely fallen since the end of January, according to data from Deutsche Bank Research.

“Our thesis is that the drop in call volumes is being driven by the fact that people are leaving more,” said Parag Thatte, strategist at Deutsche Bank. “Whether the increase in the number of airline passengers, restaurant reservations or [an uptick in usage] from Apple Maps, everything is increasing. “

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As Covid-19 restrictions continue to be lifted in the United States, it is reasonable to expect individual investors to invest part of their money in the economy – instead of brokerage accounts – after a year of pent-up demand, market watchers say. Still, few expect individual investors to disappear. Stock buying activity in the United States has already increased in the past few days, as technology stocks have begun to recover, VandaTrack data show.

“People are still more engaged than before,” said Devin Ryan, director of financial technology research at JMP Securities, noting that trading activity is still greater than in many periods of 2020.

“I think there is an expectation that there will be a ebb and flow in engagement, and the question is more about what the normalized level is,” continued Mr. Ryan. “I would not be surprised if … the place where it is installed is a little stronger than what was experienced before the pandemic and potentially even higher than points last year.”