Retail investors in the US stock market are back!
Retail investors are making a comeback, driving a series of intense fluctuations in the US stock market. With the ceasefire agreement boosting market sentiment, stocks favored by retail investors are expected to deliver their best monthly performance relative to mutual fund holdings since 2020.
The S&P 500 broke through 7,000 points this week, marking its first record high since January this year, while the Nasdaq 100 recorded 12 consecutive gains. Meanwhile, the Roundhill Meme Stock ETF has risen 54% since March 30, significantly heating up speculation in the market.
According to Bloomberg, the strong return of retail investors has been accompanied by frequent extreme market movements. Eco-friendly shoe maker Allbirds pivoted to AI, and its stock price surged 582% in one day, only to plunge 36% the next, reflecting the highly speculative atmosphere in the current market. Concepts like optical communication and quantum computing have also become new focal points of market discussion.
According to a Wallstreetcn article on April 16, retail investors sold when US stocks hit bottom and remained bearish even after the rebound began. Tom Lee believes this actually lays the groundwork for future gains: once the wait-and-see funds' sentiment reverses, it will turn into momentum chasing higher prices.
The ceasefire agreement becomes a turning point
In early April this year, oil prices soared rapidly due to escalating geopolitical conflicts, severely dampening retail investors' "buy the dip" enthusiasm and exacerbating the stock market's decline. However, the ceasefire agreement reached on April 7 completely reversed the situation.
Dave Mazza of Roundhill Investments said:
"Retail investors have not only returned, but done so forcefully. After the ceasefire news landed, the core narrative around AI and innovation quickly regained focus, and high-volatility stocks favored by retail investors began leading the market from the bottom up."
Retail-favored stocks outperform institutions by a wide margin
According to Goldman Sachs data, the basket of stocks favored by retail investors is set to deliver the strongest monthly outperformance relative to stocks favored by mutual funds since 2020, indicating individual investors are leading the rhythm of this rebound.
High-volatility stocks have been particularly prominent in this rally. This is highly similar to the meme stock frenzy from 2020 to 2021—in which retail investors focused their firepower on small-cap, high-volatility stocks, creating astonishing price elasticity in the short term.
For investors, the structural characteristics of the current market are noteworthy. The moves of individual stocks rising over 500% in a single day and then plunging over 30% indicate that the price discovery function of some stocks has been severely distorted by short-term speculative forces.
Historical experience with meme stock rallies shows that retail-driven markets are usually highly unstable. Whether this rebound can gain fundamental support, and whether the narrative of AI and innovation can continue to unite market consensus, will be key variables that determine the sustainability of the rally.
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