Rising borrowing costs, high inflation and the possibility of slowing growth have intensified market volatility this week.
Retail investor presence in equity markets too have dwindled compared to early last year when aided by fat stimulus checks and low trading fees, they flocked to online message boards to move markets while staying locked up in their homes.
The average retail investor has also underperformed the S&P 500, making just about 6% since January 2020 compared to the 24% return of the benchmark index, JP Morgan estimated.
As of Wednesday market close, U.S. retail traders accounted for about 12% of the total volume of shares traded compared to around 20% at the peak in January 2021, JPM said.
“Retail buying impulse showed signs of slowing before this latest burst of selling,” JPM strategist Peng Cheng said.
The benchmark S&P 500 is within 2% of confirming a bear market for the first since the pandemic-led crash in March 2020 as the end of easy money pushes investors out of riskier bets.
Retail buying is slowing, said Marco Iachini, senior vice-president at Vanda in a client note, but it could be “fatigue rather than outright capitulation” on their part.