The US-Iran war ends the "buy the dip" trend: American retail investors stop "bottom fishing" for the first time in over a year!

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The outbreak of the Iran war has broken the more than year-long "buy the dip" inertia among US retail investors. According to JP Morgan's latest Retail Radar report, the retail crowd is showing "persistent signs of weakness", a highly rare signal since the bank began tracking this data.

Unlike the retail investors' record bottom-fishing spree after last April's "reciprocal tariffs" shock, the scale of weekly retail purchases plummeted by about 30% following the current outbreak of geopolitical conflict. Meanwhile, weekly net inflows into retail ETFs fell by 22%, ending a stable buying streak that lasted for three months.

JP Morgan believes that this round of market movement, which lacks concentrated selling (unlike the rapid S&P 500 drop into correction territory in April 2025), may cause retail investors to mostly remain on the sidelines.

Notably, despite an overall contraction in buying power, retail investors still show a marked preference for AI and tech stocks. This week, retail investors continued to increase holdings in tech giants such as Nvidia and Microsoft, while substantially reducing energy stock holdings, demonstrating a clear sector rotation logic.

Buying impulse cools sharply: Retail flows drop below annual average

According to JP Morgan's report, during the week of March 5 to 11, total retail inflows dropped to $6.7 billion, below the 12-month weekly average of $7.1 billion.

Retail investors continued to favor ETFs (net inflows of $6.3 billion), while their interest in individual stocks shrank sharply, with only $400 million net inflows to single stocks.

The decline at the single-stock level is especially pronounced. Monday became the largest net selling day for single stocks in nearly a month. Although net buying resumed Tuesday and Wednesday, the pace remained below the year-to-date average.

Clear rotation: Selling energy, betting on AI and tech

Despite an overall reduction in positions, the direction of retail stock picking remains relatively clear. This week, retail investors continued to buy tech and discretionary stocks, including Nvidia (+$399 million), Broadcom (+$178 million), Oracle (+$172 million), Microsoft (+$154 million), Tesla (+$85 million), and PLTR.

Within the "Mag 7" constituents, retail investors sold Amazon (-$32 million), Apple (-$52 million), and Google (-$83 million).

The energy sector was the largest source of capital outflow this week, with net selling of $325 million. ExxonMobil ranked second among individual stocks for net selling (-$62 million).

JP Morgan points out that this round of retail behavior is quite similar to the initial phase following the Russia-Ukraine conflict in 2022, when retail investors also experienced weeks of buying energy stocks, briefly switched to net selling, and subsequently returned to net buying as the situation clarified.

Additionally, retail investors also recorded net selling in financials (-$214 million), healthcare (-$208 million), communications (-$126 million), and materials (-$100 million). Meanwhile, after a rebound, retail investors continue to maintain prior momentum in buying software stocks at low levels.

The JP Morgan report shows that retail investors' sources of funds are quite consistent: By selling non-AI-related stocks, they provide ammunition for continued increases in AI-related positions.

Energy options anomaly: Funds shift from XLE to USO

Despite the overall reduction in energy stock holdings by retail investors, the options market is experiencing structural divergence.

Within energy ETFs, funds are visibly flowing out of XLE (Energy Select Sector ETF)—on Tuesday, XLE saw an unusually large outflow (-5.5 standard deviations)—and instead flowing into USO (United States Oil Fund), which attracted a record inflow this week (+9.1 standard deviations).

Meanwhile, USO options trading volume surged more than four times the normal level, indicating that retail investors are using derivative tools to make directional bets on oil prices. JP Morgan data also shows that the relative activity of energy sector call options has clearly increased in the options market this week.

ETF Flows: Fixed income and international equities favored

At the ETF level, the most concentrated direction of capital flow remains broad-based equity ETFs (+$2.3 billion) this week, but other segmented directions are also attracting attention:

Multi-asset fixed income ETFs saw $347 million inflows, ultra-short-term fixed income ETFs saw $212 million inflows, international equity ETFs saw $242 million inflows, and dividend-style ETFs saw $211 million inflows.

Fixed income and low volatility ETFs were favored for increased positions, partly confirming the current defensive stance among retail investors in an uncertain environment.

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