Stock Market Retail Investors Are Bailing, Leaving Bearish Professionals In Charge

Due to higher interest rates and stubborn inflation, retail investors are buying fewer stocks in an effort to keep the positive momentum going. As a result, the market stagnates under the strain of higher interest rates and stubborn inflation.

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Vanda Research, which specializes in analyzing trends among individual investors, has reported that retail net purchases of stocks fell below $1 billion per day in recent days. As Vanda data shows, retail purchases in February reached a record level of nearly $2 billion per day, down from a record high in January that reached around $2 billion per day.

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There is an important takeaway to be drawn from Vanda's report from Thursday, which is that a major pillar of support for the rally over the past few months is likely to remain subdued over the next few weeks. “It is likely that this will result in a greater vulnerability of broad equity indices to the whims of institutional investors, which are generally seen as being more cautious regarding the near-term outlook."

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Following a strong start to the year, the S&P 500 has been struggling since early February, as interest rates are on the rise, and the Federal Reserve has promised to raise interest rates again in the future to slow the economy. A higher rate of interest also boosts interest in bonds over stocks, which is a good thing for investors.

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In spite of the brutal decline of 19% last year, the benchmark index still manages to hold onto a 4% gain this year.

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Consequently, it will be up to Wall Street pros to boost the markets in the near future, but they are generally bearish at the moment. The CEO of Greenlight Capital, David Einhorn, told Trade Algo earlier this month that investors should be overly bearish on stocks because of rising inflation expectations. Analysts at Wall Street's investment banks predict that the S&P 500 will remain at current levels for the remainder of the year.

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Aside from the macroeconomic woes, Vanda believes some of the dwindling enthusiasm from retail audiences can be attributed to the fact that interest in Tesla shares is on the decline.

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The Tesla Motors company hosted a day for investors at the beginning of the month, but investors were mostly disappointed with the lack of information about Tesla's future plans, including the possibility of a lower-priced model.

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“There is an increased risk that the stock may face further pressure if hedge funds take advantage of the negative price momentum (see last week's VT) and if retail flows were to slide back to pre-2023 levels due to profit-taking as investor interest wanes following investor day,” the Vanda report stated.

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The shares of Tesla have fallen 12% so far this month.