Exclusive: Investors move past Mag 7 into risky AI bets
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Retail investors are shifting away from the Magnificent 7 stocks in favor of riskier AI plays, according to Charles Schwab's Trading Activity Index known as the STAX, which tracks the retail trading activity of millions of customers.
Why it matters: The Mag 7 moment is nowhere near over, but that basket of seven Big Tech stocks may be losing its popularity among retail investors.
Catch up quick: Retail activity got more aggressive after last month's cut in interest rates from the Federal Reserve. The Mag 7 stocks aren't generating the biggest returns, even as the S&P 500 continues to hit record highs.
- "Nvidia is not even cracking the top 50 in terms of year-to-date performance," Joe Mazzola, Charles Schwab's head trading and derivatives strategist, tells Axios in an exclusive interview.
- Retail clients noting these trends went shopping for other opportunities in September, buying Oracle, CoreWeave and Opendoor. They also sold Tesla, Apple, Alibaba, Micron and Super Micro Computer.
Between the lines: The new entrants on the top buying list for retail clients suggest that investors want to freshen up their portfolios for higher returns.
What they're saying: "These are stocks trading with a higher beta and higher volatility, and it says to me that clients are feeling more comfortable taking on that risk," Mazzola says, adding that investors were more focused on AI-adjacent stocks across various sectors as well.
Zoom out: This kind of higher volatility trading, with investors getting in and out of stocks versus buying for the long term, marks a shift from the more skittish retail activity in the summer. In August, Mazzola says, retail activity wasn't saying "'let's jump with both feet into this pool' at this point."
- Retail investors are now actively allocating to more volatile stocks.
What we're watching: Risk level. If retail starts getting too adventuresome, that could be a concern.
- "When I do get nervous is when I see all one-way momentum trades or whatever…call options, we're not seeing that yet," according to Mazzola, "but it's not to say that can't happen."
