Since the beginning of this year, retail investors have been a key force driving the rise of US stocks. And now this force is weakening, which is undoubtedly an ominous sign for US stocks. Retail investors withdrew more funds from US stocks in October than in any month of the past two years.
According to S&P Global Market Intelligence, retail investors sold nearly $16 billion in US stocks last month, almost twice the amount sold in September.
They sold stocks in almost all industries, but increased their exposure to the real estate industry. Real estate is the second worst performing sector in the S&P 500 index this year, with a decline of 8.3% during the year.
The October sell-off indicates that the enthusiasm of retail investors is fading, as they have been chasing a rebound in the stock market since the beginning of the year.
US stocks closed lower on Thursday. After the disappointing 30-year US treasury bond auction and Fed Chairman Powell's speech, the NASDAQ index and the S&P 500 index ended the longest round of consecutive gains in two years.
Although the S&P 500 index has risen by 13% this year, the decline since early August has reached 5% as investors have begun to react to the Fed's decision to keep interest rates at higher levels for a longer period of time and the increasing geopolitical risks.
Federal Reserve Chairman Powell said on Thursday that the Fed will "continue to act cautiously". If necessary, the Federal Reserve will not hesitate to raise interest rates. He believes that inflation in the United States has decreased, but still far exceeds the 2% target. After Powell's speech, traders postponed their bets on the first Fed rate cut from May next year to June.
Before the past few months, they (retail investors) may have been the first group to think of buying on dips and profiting from pullbacks, "said Christopher Blake, executive director of S&P Global Issuer Solutions." We believe this is more like a turning point in some long-term macro trends behind retail investment
In addition, institutions withdrew less funds from US stocks in October than in September, but are still net sellers. In that month, the total sales volume of the institution was $19 billion, lower than the average of $21 billion in the past 12 months. At the same time, hedge funds have increased their exposure to US stocks.