Retail investors are still outsmarting Wall Street
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Illustration: Brendan Lynch/Axios
Retail investors bought the tech dip and took profits on winners in November, according to Charles Schwab's Trading Activity Index, which tracks the retail trading activity of millions of customers.
The big picture: While retail investors stayed concentrated on tech stocks, Wall Street focused on hedging. As tech stocks have recovered, retail once again looks smarter than institutional investors.
What they're saying: "The entire tech sector got bought really heavily," Joe Mazzola, head trading and derivatives strategist at Charles Schwab, tells Axios. "Clients actually did what they said they would do."
- Trader bullishness jumped to 49% from 39% month-over-month, a Schwab survey found, outpacing the optimism of more long-term investors on the platform.
- Amid the November tech pullback, retail was "buying with two hands."
Zoom out: Conversely, Wall Street spent the month hedging downside risks. Globally, many hedge funds are underperforming the S&P 500 year-to-date.
- Retail traders, meanwhile, this year beat SPY and QQQ — ETFs that track the S&P 500 and Nasdaq — largely because they leaned heavily into tech, according to JPMorgan.
Zoom in: Out of the 11 sectors in the S&P 500, retail investors were net buyers of only two of them: information technology and consumer discretionary.
- Nvidia, Palantir, Meta and Amazon were among the most popular buys.
- On the flip side, retail sold stocks that hit record highs, including Eli Lilly, coinciding with the company entering the trillion-dollar company club.
- That may indicate a prudent profit-taking strategy as stocks hit records.
Reality check: It is possible that this is less about strategy and more about the rout in crypto. Retail investors with strong crypto allocations could be selling off some equity winners to take profits as they feel less rich.
The bottom line: Retail clients today are "dramatically different" than they were 20 years ago," Mazzola says, noting they are better educated about a strategic approach to investing.
- Buying the dip and selling the rip while Wall Street focused on hedging in November is one example of that.
