Exclusive: Retail investors took caution in July
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Illustration: Aïda Amer/Axios
Retail investors are cautiously optimistic about the stock market, according to Charles Schwab's proprietary STAX index, which analyzes the retail trading activity of millions of Schwab customers. Still, clients were net sellers of stocks for July.
Why it matters: Retail investors are increasingly important market participants. If they're getting cautious about the market, that could impact where stocks are heading.
What they're saying: Retail clients "are bullish…but it's not the same extent we've seen during other kind of market peaks," says Joe Mazzola, Charles Schwab's head trading and derivatives strategist.
- "They do look at specifically tech stocks and they think they're overvalued," he adds.
- Retail traders are rotating out of the market favorites and into less risky stocks that could provide some cushion amid any market pullback, he says.
Zoom in: Net selling was highest in the information technology sector, while net buying was strongest in communication services, health care and financials. Retail is also buying energy and utilities. On an individual stock basis, retail:
- Bought Nvidia, Tesla, Palantir, Amazon and UnitedHealth.
- Sold Apple, Ford, AMD, Boeing and Nike.
Between the lines: The rotation out of more risky areas of the market "doesn't really to me scream, 'let's jump with both feet into this pool' at this point," Mazzola tells Axios.
- "They're looking for dips in stocks they want to own" he says.
- That could also explain the buying in a name like UnitedHealth which is down 27% over the last month.
Yes, but: How could retail investor activity look cautious the same month meme stock mania returned to Wall Street?
- The meme craze could have been driven by a smaller pool of traders, Mazzola says.
- "We're just not seeing a lot of net buys in some of the meme stocks," he notes.
Be smart: Retail investors stayed in the market in April, when institutional investors got spooked and pulled their money out, earning the group credibility on Wall Street.
- The question is whether novice traders are right again this time to be skittish on the market when institutional investors are largely staying bullish.
