Retail replaces ‘smart money' as Wall Street rocket fuel
Flow and survey data show that – far from playing catch-up – retail investors are a key force behind the latest US equity whoosh that has been lifting the S&P 500 and Nasdaq to new highs on a near-daily basis.
Retail investor participation as a share of total S&P 500 flow last week reached 12.63 per cent, according to calculations by Goldman Sachs analysts. That's the highest share since February and well above the recent average, as retail participation has rarely exceeded 13 per cent in the last few years, their figures show.
Retail investors have been the 'primary' driver of the current rally, Barclays equity strategists suggest, pouring more than US$50 billion into global stocks over the last month.
And their enthusiasm for equities is continuing to build, while institutional participation remains 'muted', Barclays strategists note.
'Re-risking seems to be the priority for small investors as improved sentiment into Q2 2025 earnings, resilient macro data and Fed (Federal Reserve) cut speculation combine to outweigh still-lingering tariff threats and deficit concerns,' they wrote last week.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
This optimism was underscored in Morgan Stanley's latest quarterly survey of retail investors published last week.
It shows 62 per cent of those polled are now bullish US equities, and 66 per cent reckon the US market will rise by the end of the quarter. These are both the highest levels since the survey was launched two and a half years ago.
Long Krispy Kreme
This surge in retail activity could be a positive development. At a basic level, broader participation and democratisation of the market is to be welcomed. And some analysts reckon the retail investor community has matured since 2021 when the 'meme stock' frenzy spilled over into the wider market.
But current retail trading still includes some of this highly speculative, often options-related meme stock activity, with the main targets this time around being heavily shorted names like Krispy Kreme, GoPro and Kohl's.
Indeed, Bank of America analysts note, 'zero-day to expiry' options that are popular with retail investors recently accounted for more than 60 per cent of all S&P 500 options trading activity.
And the longer the rally continues, the more fears of a major correction that crushes the retail community are bound to grow. These fears are not unwarranted.
The latest figures from the Financial Industry Regulatory Authority (Finra) show that margin debt in US stocks has crossed the US$1 trillion mark for the first time. This represents both retail and institutional investors' activity, but according to JPMorgan analysts, the retail cohort is predominantly responsible for the rise.
Of course, investors' margin debt would be expected to rise over time in line with inflation and the underlying equity indices, particularly in a bull market. But some analysts still consider rising margin debt a sign of market froth or outright over-exuberance.
Regulatory easing
On top of all this, retail investors may soon get a helping hand from Washington. A series of what Bank of America analysts call 'financial regulation policy-easing' measures are being lined up that will facilitate retail investors' trading in equities and other less-liquid markets.
For example, the Trump administration is drawing up an executive order to allow retail investors to add private equity into 401(k) retirement funds. Media reports also suggest Finra is considering proposals to ease the 'Pattern Day Trading Rule' – which was set up to limit highly speculative trading practices – by slashing investors' minimum margin account balance requirements to US$2,000 from US$25,000 currently.
Of course, with deregulation comes higher risk and lower protection for investors. But for now, retail investors are in the driver's seat and enjoying the ride. REUTERS
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
3 hours ago
- CNA
Shares get a lift in Asia as lower US rates are baked in
SYDNEY :Share markets found some much needed support in Asia on Monday as the heightened prospect of lower borrowing costs helped soothe concerns about the U.S. economy, though the long-term credibility of U.S. policy remained in doubt. A buy-the-dip mentality led to a bounce in Wall Street and European stock futures, and allowed the dollar to stabilise after Friday's U.S. payrolls-induced retreat. Treasuries ran into some profit-taking after their huge gains, but fund futures still imply an 85 per cent chance the Federal Reserve will cut rates in September and ease by 100 basis points or more by this time next year. The prospect of a shift in rates was the only silver lining to a dire payrolls report in which downward revisions left the three-month average of jobs growth at 35,000 from 231,000 at the start of the year. "The report brings payroll growth closer in line with big data indicators of job gains and the broader growth dataset, both of which have slowed significantly in recent months," said analysts at Goldman Sachs. "Taken together, the economic data confirm our view that the U.S. economy is growing at a below-potential pace." Neither did the reaction of President Donald Trump instil confidence, as the firing of the head of Labor Statistics threatened the credibility of U.S. economic data. Likewise, news that Trump would get to fill a governorship position at the Federal Reserve early added to worries about the politicisation of interest rate policy. Analysts assume the appointee will be loyal to Trump alone, though the president did grudgingly concede that Fed Chair Jerome Powell would probably see out his term. "It opens the prospect of broader support on the Fed Board for lower rates sooner rather than later," said Ray Attrill, head of FX research at NAB. "Fed credibility, and the veracity of the statistics on which they base their policy decisions, are both now under the spotlight." Markets have essentially already eased for the Fed, with two-year Treasury yields down almost 25 basis points on Friday in the biggest one-day drop since August last year. DOLLAR DENTED The drop in global yields seemed to help equities, with S&P 500 futures and Nasdaq futures both bouncing 0.4 per cent. EUROSTOXX 50 futures gained 0.6 per cent, while FTSE futures rose 0.5 per cent and DAX futures 0.4 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan firmed 0.7 per cent, aided by a 1.1 per cent rally in South Korean stocks. Japan's Nikkei fell 1.4 per cent, in part weighed by Friday's rebound in the yen, while Chinese blue chips were flat. Wall Street has taken comfort in an upbeat results season. About two-thirds of S&P 500 companies have reported, and 63 per cent have beaten forecasts. Earnings growth is estimated at 9.8 per cent, up from 5.8 per cent at the start of July. Companies reporting this week include Disney, McDonald's, Caterpillar and some of the large pharmaceutical groups. The dismal U.S. jobs data did put a dent in the dollar's crown of exceptionalism, snuffing out what had been a promising rally for the currency. The dollar was a shade firmer at 147.79 yen, having shed an eye-watering 2.3 per cent on Friday, while the euro held at $1.1574 after bouncing 1.5 per cent on Friday. The dollar index was pinned at 98.801, having tumbled from last week's top of 100.250. Sterling was restrained at $1.3281 as markets are 87 per cent priced for the Bank of England to cut rates by a quarter point at a meeting on Thursday. The BoE board is expected to remain split on easing, while markets still favour two further cuts by the middle of next year. In commodity markets, gold was little changed at $3,357 an ounce, having climbed more than 2 per cent on Friday. Oil prices extended their latest slide as OPEC+ agreed to another large rise in output for September, which completely reverses last year's cuts of 2.2 million barrels per day.
Business Times
5 hours ago
- Business Times
Asia: Markets fluctuate as traders weigh tariffs, US jobs
[HONG KONG] Asian markets flitted between gains and losses on Monday as investors continued to digest last week's tariff blitz by Donald Trump and a US jobs report that fanned fears about the world's top economy. News on Friday that dozens of countries would be hit with levies ranging from 10 to 41 per cent sent shivers through exchanges amid concern about the impact on global trade. With the date of implementation pushed back to Thursday, focus will be on talks between Washington and other capitals on paring some of the tolls back. The pain was compounded later by figures showing the US economy created just 73,000 jobs in July - against 104,000 forecast - while unemployment rose to 4.2 per cent from 4.1 percent. Job gains from June and May were also revised down by nearly 260,000. The figures stoked concerns that Trump's tariffs are beginning to bite, with inflation also seen pushing back towards three per cent. The reading also saw the president fire the commissioner of labour statistics, accusing her of manipulating employment data for political reasons. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Bets on the Federal Reserve cutting interest rates at its September meeting shot up following the jobs numbers, with some analysts predicting it will go for a 50-basis-point reduction, rather than the regular 25 points. Yields on US Treasury bonds fell sharply as investors priced in the cuts. Investors will now be keenly awaiting every utterance from Fed boss Jerome Powell leading up to the next policy meeting, not least because of the pressure Trump has put on him to lower rates. Observers said news that governor Adriani Kugler will step down from the bank six months early will give the president a chance to increase his influence on decision-making. 'Fed credibility, and the veracity of the statistics on which they base their policy decisions, are both now under the spotlight,' said National Australia Bank's Ray Attrill. 'Fed officials, such as New York President John Williams speaking after the data, profess to be open minded about the September Fed meeting, but Mr Market has already decided they are cutting - ending Friday 88 per cent priced for a 25-basis-points rate reduction.' Still, Asian investors tried to get back on the horse after Friday's selloff, with Hong Kong, Shanghai, Singapore and Seoul up, while Tokyo, Sydney, Wellington, Taipei, Manila and Jakarta were all down. The performance was better than New York, where the S&P 500 and Dow each lost more than one per cent and the Nasdaq more than two per cent - with some also questioning whether a recent rally to multiple records has gone too far. The dollar edged up but held most of its losses against its peers after tanking on the jobs report. And oil extended Friday's losses of almost three per cent, which came after Opec and other key producers agreed another output hike, fanning oversupply fears owing to the effects of Trump's tariffs and signs of a weakening economy. AFP
CNA
6 hours ago
- CNA
Shares find support in Asia as lower rates priced in
SYDNEY :Share markets found some much needed support in Asia on Monday as the prospect of lower borrowing costs helped soothe concerns about the U.S. economy, though the long-term credibility of U.S. policy remained in doubt. A buy-the-dip mentality led to a bounce in Wall Street and European stock futures, and allowed the dollar to stabilise after Friday's payrolls-induced retreat. Treasuries ran into some profit-taking after their huge gains but fund futures still imply an 85 per cent chance the Federal Reserve will cut rates in September, and ease by 100 basis points or more by this time next year. The prospect of a shift in rates was the only silver lining to a dire payrolls report in which downward revisions left the three-month average of jobs growth at 35,000 from 231,000 at the start of the year. "The report brings payroll growth closer in line with big data indicators of job gains and the broader growth dataset, both of which have slowed significantly in recent months," said analysts at Goldman Sachs. "Taken together, the economic data confirm our view that the U.S. economy is growing at a below-potential pace." Neither did the reaction of President Donald Trump instil confidence, as the firing of the head of Labor Statistics threatened the credibility of U.S. economic data. Likewise, news that Trump would get to fill a governorship position at the Federal Reserve early added to worries about the politicisation of interest rate policy. Analysts assume the appointee will be loyal to Trump alone, though the president did grudgingly concede that Fed Chair Jerome Powell would probably see out his term. "It opens the prospect of broader support on the Fed Board for lower rates sooner rather than later," said Ray Attrill, head of FX research at NAB. "Fed credibility, and the veracity of the statistics on which they base their policy decisions, are both now under the spotlight." Markets have essentially already eased for the Fed, with two-year Treasury yields down almost 25 basis points on Friday in the biggest one-day drop since August last year. DOLLAR DENTED The drop in global yields seemed to help equities, with S&P 500 futures and Nasdaq futures both bouncing 0.4 per cent. EUROSTOXX 50 futures gained 0.6 per cent, while FTSE futures rose 0.5 per cent and DAX futures 0.4 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan firmed 0.6 per cent, aided by a 0.8 per cent rally in South Korea stocks. Japan's Nikkei fell 1.6 per cent, in part weighed by Friday's rebound in the yen, while Chinese blue chips were flat. Wall Street has taken comfort in an upbeat results season. About two-thirds of the S&P 500 have reported and 63 per cent have beaten forecasts. Earnings growth is estimated at 9.8 per cent, up from 5.8 per cent at the start of July. Companies reporting this week include Disney, McDonald's, Caterpillar and some of the large pharmaceutical groups. The dismal U.S. jobs data did put a dent in the dollar's crown of exceptionalism, snuffing out what had been a promising rally for the currency. The dollar was a shade firmer at 147.69 yen, having shed an eye-watering 2.3 per cent on Friday, while the euro held steady at $1.1583 after bouncing 1.5 per cent on Friday. The dollar index was pinned at 98.727, having been toppled from last week's top of 100.250. Sterling was restrained at $1.3282 as markets are 87 per cent priced for the Bank of England to cut rates by a quarter point at a meeting on Thursday. The BoE board itself is expected to remain split on easing, while markets still favour two further cuts by the middle of next year. In commodity markets, gold was flat at $3,361 an ounce, having climbed more than 2 per cent on Friday. Oil prices extended their latest slide as OPEC+ agreed to another large rise in output for September, which completely reverses last year's cuts of 2.2 million barrels per day.
