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Contrasting market views: Retail buying surge vs. institutional caution


Retail buying surge vs. institutional caution

Individual investors in the USA are buying stocks in large quantities, while "big players" or institutional investors, in the latest survey, have expressed plans to sell their shares. This trend highlights a divergence in market sentiment between retail and institutional investors, indicating potential differences in market outlook and risk assessment.


In recent years, individual investors have directed substantial amounts of capital into the US stock market. Since the onset of the pandemic, these investors have collectively poured an average of approximately $1.2 billion net into the stock market every day. This data, provided by Vanda Research and reported by the Financial Times, underscores the significant role that individual investors have played in driving market activity during this period.


In contrast, during the years 2014 to 2020, the daily net inflow of capital from individual investors was considerably lower, averaging less than $0.4 billion. At the end of 2019, there was even a temporary period where individual investors were net sellers, resulting in a net outflow of capital. This shift in investment behavior from net outflows to substantial net inflows marks a notable change in market dynamics driven by individual investors.



Currently, the capital inflow from individual investors is about three times higher on a daily basis than it was during the period from 2014 to 2020. This significant increase in investment by retail investors has contributed to the buoyancy of the stock market, reflecting their growing influence and optimism.


Interestingly, the latest survey conducted by JP Morgan among its clients, who are predominantly large institutions and financial firms, revealed a generally pessimistic outlook on the US stock market. This survey contrasts sharply with the optimism seen among individual investors, indicating differing perspectives on market conditions and future prospects.


JP Morgan's clients include large institutional investors, such as fund managers and directors of major, well-capitalized companies. The survey did not include individual investors, focusing instead on the views of these influential market participants who manage substantial amounts of capital.



The survey results showed that two-thirds of these large investors plan to sell rather than buy stocks in the coming days or weeks. This information, published by JP Morgan on May 15, 2024, highlights a cautious or bearish stance among these institutional investors, possibly due to concerns about market valuations, economic conditions, or geopolitical risks.


Only 33% of JP Morgan's large clients intend to buy stocks, as opposed to selling. This relatively small proportion of buyers among institutional investors suggests a lack of confidence in the market's ability to sustain its current levels or grow further in the near term.


When comparing the survey results from large investors with general sentiment indicators on the US stock market, a noticeable discrepancy becomes apparent. The "Fear and Greed" index developed by CNN, which measures market sentiment, shows that greed currently dominates the market. With a current value of 61 points, the index indicates a state of "greed," suggesting that investors are more inclined to take risks in pursuit of higher returns.



The "Fear and Greed" index ranges from 0 to 100 points, where a value of 100 represents maximum greed and a value of 0 represents maximum fear. According to CNN, this index helps gauge market movements and whether stocks are fairly priced, providing insights into investor sentiment. Many investors tend to react emotionally, and the Fear and Greed index can alert them to their own biases and emotions that might influence their investment decisions.


Similarly, the "Bull and Bear" index developed by Bank of America shows that a bullish sentiment prevails among market participants. The latest value of this index, estimated on May 16, 2024, indicates a strong bullish sentiment, meaning that investors are generally optimistic about the market's future performance.



It is important to remember that these indices, such as the Fear and Greed and Bull and Bear indices, merely reflect the current market sentiment and do not serve as predictive or recommendatory tools. Their primary purpose is to assess the state of the stock market at a given time. However, they can be valuable for investors in understanding their own tendencies and biases before making independent investment decisions, helping them to navigate the complexities of market sentiment.


19.05.2024



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