- Retail investors are hesitant to return to the stock market amid the bear’s current decline.
- That’s according to JPMorgan, which has seen subdued stock flows, weak NYSE margin accounts and depressed call option buying.
- “The deleveraging of younger cohorts has progressed so far that all of the previous post-pandemic increase has already been reversed,” JPMorgan said.
The retail frenzy that gripped the stock market amid the COVID-19 pandemic in 2020 and 2021 is officially over, according to JPMorgan.
The bank said in a Wednesday note that retail investors were hesitant to re-enter the market after this year’s 20% bear market decline as falling stock prices led to debilitating losses and depressed sentiment.
JPMorgan’s analysis was derived from observations that equity fund flows are far from where they were in 2020 and 2021, call option buying volume is depressed, margin accounts NYSE fell significantly and a basket of retailer-favorite individual stocks failed to catch a bid amid the ongoing market sell-off.
According to the bank, the reluctance to return to stocks is seen in both older and younger cohorts of retail traders, as older investors tend to gravitate towards stock ETFs and traditional mutual funds, while younger retail investors are moving more towards individual stocks and options.
Margin accounts saw the biggest decline, with NYSE margin account data showing the leverage measure falling to levels last seen in September 2019. Buying activity call options for trades with less than 10 contracts, which typically represents retail trading activity, is at an all-time low. since December 2019.
“In other words, the deleveraging of younger cohorts has progressed so far that all of the previous post-pandemic increase has already been reversed,” JPMorgan said.
And there appears to be little change in retail activity so far in July, the bank said, meaning mainstream investors don’t believe the 10% rally the S&P 500 has seen from its low. end of June of around 3,600.
Retail investors aren’t the only ones not buying the current rally, as Fairlead Strategies’ Katie Stockton has warned investors that the current rally is nothing more than a fast and furious bear market surge that is likely to fade away.
But for retail investors saving for the long haul, today’s bear market will likely present a solid buying opportunity if history is any guide.