Retail Investors are Underperforming the Market

The average retail investor underperformed the S&P 500 by 11% since February

Although day traders and retail investors have pushed meme stocks like GameStop (GME) and AMC Entertainment (AMC) to record heights, data shows that the average retail investor has underperformed the market over the past month.

Since mid-February, the average retail investor has underperformed the S&P 500 by 11%, according to VandaTrack, a data provider of investor positioning and flow metrics. VandaTrack suggested this could be the reason why fewer people are investing their $1,400 stimulus checks into stocks.

JPMorgan said Tuesday that the American Rescue Plan is driving less retail activity than the last round of payments. The investments that are being made focus on traditional assets like cash equity, exchange traded funds (ETFs), and small caps, versus more speculative areas like tech stocks and Bitcoin, JPMorgan said.  

VandaTrack said this follows a similar trend to what happened in September after the average retail investor lost nearly 14% when tech stocks plunged following the stock splits of Apple (AAPL) and Tesla (TSLA), two of the most popular and widely held stocks by investors of all sizes. At the time, retail equity purchases steadily declined before picking up pace after the U.S. election, when purchases returned to all-time highs.

VandaTrack chart 1
Chart courtesy VandaTrack, Bloomberg.

“The last time retail investors suffered a drawdown of this magnitude, their appetite to buy risk assets dropped dramatically in the following months,” VandaTrack said. “We fear retail investors may have entered a similar healing process, nullifying the impact of stimulus checks.”

VandaTrack chart 2
Chart courtesy VandaTrack, Bloomberg.

On March 25, net purchases of U.S. stocks by retail investors equaled $24.65 billion, down from a peak of $29.75 billion on Feb. 5. Regardless, levels are still at all-time highs.

Over the past year, market trading volumes have increased significantly amid the pandemic as retail investors entered the market in swarms and prompted a trading frenzy that drove several stocks higher. Many investors used trading apps like Robinhood as well as utilized message boards like Reddit’s WallStreetBets.

Robinhood reportedly filed confidentially for an initial public offering with the Securities and Exchange Commission (SEC) earlier this week. The company was reportedly valued at $12 billion in Sept. 2020, with that figure rising to about $40 billion in February.

Stocks like Palantir Technologies (PLTR), Nio (NIO), and Walt Disney (DIS) have been losing hype with retail investors, according to SwaggyStocks, which tracks comment volume on WallStreetBets. Meanwhile, more investors have been focusing on GameStop, AMC, and Corsair Gaming (CRSR).

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  1. Business Insider. "JPMorgan says stimulus checks are driving less retail-investing activity than the last round of payments."

  2. SwaggyStocks. "WallStreetBets Sentiment Trends."

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