What Signal? US Stocks Plunged on US-Iran Conflict, but Retail Investors Didn't "Buy the Dip" for the First Time in a Year!

Cailian Press, March 13 (Editor: Huang Junzhi) Recently, as the US-Iran conflict continues to escalate, retail investors who heavily bought the dip during last year’s “Liberation Day crash” and other pullbacks seem to have lost their enthusiasm. JPMorgan released a new report indicating that the retail investor group is showing “signs of persistent weakness,” a rare signal since the bank began tracking it.

Last year, after Trump announced “reciprocal tariffs,” retail investors’ record-breaking bottom-fishing actions shocked Wall Street. However, JPMorgan’s U.S. equity quantitative strategist Arun Jain and his team pointed out that this geopolitical conflict is different from previous ones, with retail weekly purchase volumes dropping sharply by about 30%.

“For the first time this year, retail investors have shown sustained weakness, with weekly purchase volumes significantly slowing down, decreasing by approximately 30%,” the report states.

Meanwhile, JPMorgan’s team also noted that during the week of March 5-11, retail ETF weekly net inflows decreased by 22%, ending a three-month streak of steady buying; total retail inflows fell to $6.7 billion, below the past 12 months’ weekly average of $7.1 billion.

“Among them, ETFs remain popular among investors, with inflows reaching $6.3 billion, while funds flowing into individual stocks were only $400 million. Monday saw the largest single-stock net sell-off in nearly a month; although net buying resumed on Tuesday and Wednesday, the pace remained below the year-to-date average,” the strategists added.

Although retail enthusiasm has sharply declined, their stock selection remains very clear: sell energy stocks and buy AI stocks.

Morgan Stanley strategists pointed out that this week, retail investors continued to buy technology stocks, including Nvidia, Broadcom, Oracle, Microsoft, Tesla, and Palantir, as well as some non-essential consumer stocks. Additionally, software stocks became a target for buying, as the S&P 500 Software Index recently rebounded from its lows at the end of February.

“This behavior is similar to what we saw at the beginning of the Russia-Ukraine conflict in 2022—initial weeks of buying energy stocks and ETFs, a brief turn to net selling, then a return to net buying as the conflict became clearer,” the report states.

JPMorgan also noted that recently, retail investors have been buying aerospace and defense stocks, while net selling sectors such as financials, healthcare, communications, and materials.

Furthermore, the US Oil Fund (USO), which tracks West Texas Intermediate (WTI) crude oil prices, remains popular, with funds flowing out of the Energy Select Sector SPDR Fund (XLE), which tracks major energy companies.

It is noteworthy that retail investors have become a significant part of the investor community, a trend traceable back to the COVID-19 pandemic in 2020 when most people were confined at home. Scott Rubner, head of Citadel Securities’ stock and equity derivatives strategies, recently stated that retail investors are “the most powerful force in the stock market.”

(Cailian Press, Huang Junzhi)