Jan 25, 2022 - Economy & Business

Retail stock traders power stunning comeback after deep selloff

Illustration of an arrow line filled with a money pattern going upward on a graph.
Illustration: Megan Robinson/Axios

Stocks staged a Patrick Mahomes-esque comeback Monday, after plunging for the first few hours of trading.

Why it matters: The remarkable recovery suggests that retail traders who upended markets over the last year — most notably during the GameStop bonanza that occurred almost exactly a year ago — continue to be powerful influence in the markets.

Details: Shortly after 12 p.m., the S&P 500 was down by nearly 4% and the tech-heavy Nasdaq composite was down almost 5%.

  • It was shaping up to the be worst day for the market since June 2020.

But starting in the afternoon a wave of buyers emerged, snapping up shares of tech stocks and fan-favorite shares such as Tesla — a potential indication that retail traders could be at work. The rally lifted the market sharply and eventually pushed it back into positive territory.

  • The S&P 500 and the Nasdaq both ended with tidy gains on the day.

Our thought bubble: Nobody really knows why the markets behave wildly on any given day. There was no obvious or fundamental news that emerged in the afternoon Monday that should have heartened investors that much.

The big picture: What seems to be happening, however, is a prime example of retail investors buying the dip. Essentially, individual traders are stepping up to buy shares on the expectation that the markets will turn around, because, well, they usually have.

  • Fidelity's closely watched scoreboard of retail stock orders suggests there was a massive surge into the hardest hit corners of the market and longstanding retail favorites such as Tesla, Apple, GameStop and AMC.

Yes, but: It's still been an ugly start to the stock-trading year. The S&P is down nearly 7.5% in January.

  • That's the fourth-worst start for the S&P since 1929, according to Ned Davis Research.

What's next: We'll see if the dip-buying was more like blip-buying.

  • Futures markets suggest we're going to have an ugly opening to the trading day in New York.
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