Retail Remains Active, but Trading Turns Bearish
Although the economy still seems to be slowing, the stock market has already started to look up. That may be because inflation is now falling, and the Fed’s interest rate hikes may have ended – or are at least close. That removes a headwind that higher rates caused for stocks in 2022 and allows investors to focus on each company or sector's growth potential.
As we update our retail trading charts with insights from Nasdaq Data Link, we see that retail activity remains strong, but retail has turned more bearish — despite the rally in stocks. In fact, bond ETFs have become one of the larger net buys by retail investors.
Gross retail trading holding up
Despite the economic slowdown, we see retail activity levels (green area) holding up. Although trading value is off February highs, which spiked well over $50 billion on its largest day, trading is still consistently over $30 billion and averaged $32 billion per day in April.
At the same time, market-wide liquidity (blue line, right axis) has remained well below 2022 levels – despite a spike in trading to close to $1 trillion as the U.S. regional banking crisis unfolded.
Chart 1: Gross retail trading (market-wide trading in blue, right axis)
Retail trading of corporates shifted negative despite market rally
Looking at net flows for corporate stocks, we see that retail started positively, as stocks rallied in January. But those inflows have since reversed.
Although stocks have recovered, with the Nasdaq index up 17.6% YTD, retail has turned back to selling stocks – with all sectors net for sale – especially tech and consumer discretionary stocks.
Chart 2: Net stock flows by month and sector (Line shows SPY price)
However, retail remains net buyers overall, thanks to inflows into ETFs (yellow and pink in Chart 3).
In addition, the data shows a significant increase in retail buying of bond ETFs, especially as yields on bonds increase thanks to the Fed increases in short-term rates.
Chart 3: Retail buying of ETFs offsets selling of stocks
What stocks are hot?
In the table below, we can see what stocks retail investors look at the most.
Gross trading tends to always have SPY, AAPL and TSLA among the top stocks. It’s also a little misleading to look at net trading, as large stocks and ETFs see more diversity of buyers and sellers (and less net directionality).
In the list below, we look at each stock based on a mix of retail activity metrics, including gross trading, net buying and retail market share. We add options interest, price return and volume spikes to show stocks with news to drive their activity. The heatmap shows what data has contributed to each stock's combined score. Importantly, the list rewards both positive and negative performance, and the activity measured is not meant to predict future performance.
When we look at our list, we see that:
- Banks, which had been very active, have now fallen out of our list. Their volume spike and returns were strongest in the early weeks of the banking crisis.
- They have been replaced by a lot of AI and emerging technology companies, with the table showing the individual investor interest in tickers like AI, BBAI, and SOUN. Chegg, an unfortunate byproduct of the introduction of AI to the mainstream, also appeared on the rankings after issuing guidance during their last earnings call that generative AI would cause headwinds to their business.
- Renewables continue to be a major retail theme. Three EV companies (NIO, PLUG, CHPT) and a solar company (ENPH) are in the top 20 names in this list.
- Other technology-impacted stocks like rideshares (UBER) and semiconductors (SMCI) seem to have also been beneficiaries of the attention AI has received.
- Only one ETF makes this list – MJ – thanks to high retail share and a relatively large increase in volumes.
Table 1: Retail investors’ top 20 securities (April to Now)
What ETFs are hot?
Using a similar methodology, we also created a list to show what ETFs are attracting investors.
Note that this list includes all market participants (not just retail) and makes use of creation and redemption data (instead of net retail buys and sells). This multifactor scoring ensures that SPY (the most liquid stock in the world) doesn’t rank #1 all the time. Similar to the top stocks list, the ETF list rewards both positive and negative performance, and the activity measured is not meant to predict future performance.
What stands out in our top 20 list since the start of April is:
- Sector funds have the largest net inflows — Semiconductors (SMH), Communications (XLC) and Consumer Staples (XLP) all had more than $1 billion in net creations.
- Trading in regional banks can be seen here, with KRE and FTXO both making the list, with negative flows and returns. However, KRE volume has decreased 11% since the start of April when compared with the preceding period.
- With the sell-off in oil markets, on the back of fears of an economic slowdown, there are a handful of energy names in our top-20 ETFs — ranging from oil and natural gas commodities to energy sector funds.
- There are also a handful of European country ETFs, all with outflows, that made the list.
Table 2: Investors’ top 20 ETFs (April to Now)
Retail continues to add liquidity to U.S. markets and assets to U.S. ETFs
Despite challenges in the economy and a growing debt ceiling debate, retail remains active in the U.S. stock market. That continues to contribute significant liquidity to many stocks and assets to U.S. ETFs.
Phil Mackintosh
Nasdaq
Phil Mackintosh is Chief Economist and a Senior Vice President at Nasdaq. His team is responsible for a variety of projects and initiatives in the U.S. and Europe to improve market structure, encourage capital formation and enhance trading efficiency.
Read Phil's Bio