The last time we updated retail distribution data was in April, before the summer “slowdown.” Since then, the S&P 500 has continued to rise (Chart 1, green line) and is now up more than 20% year-to-date. Since that has happened, there have been some notable changes in the sectors and asset classes that retail investors trade.
Stock purchase redirected from TSLA to NVDA
Looking at corporate stock trading, we see that the retail industry entered the Mag-7 and AI trades early last year, and TSLA is heavily overbought.
But in 2024, retail investors have switched their favorite stock to Nvidia (NVDA), trading nearly $4 billion in NVDA every day. They are also net buyers of the advanced chip design company, valued at nearly $13 billion.
Chart 1: As the market rally dragged on, retail buying into NVDA became the bulk of individual stock flows.
This level of single-stock concentration is not uncommon.
In the retail industry, there are often “favorite stocks” that trade more than other tickers. But still, their trade remains relatively diversified. for example:
- This year, NVDA accounted for only 13.4% of all retail trading value and was the most popular stock (by trading value) on only 64% of days.
- Going back to 2020, Tesla (TSLA) was consistently the most popular trade, reaching almost 30% of all trades in February 2023.
For about six years since the beginning of 2019, TSLA has held many “Most Popular Retail Stock” records. The company spent 678 days (48% of the period) as the most traded stock by retail investors, accounting for an average of 8.6% of daily retail dollar volume from January 2019 to date.
Interestingly, the last day that AAPL led in retail trading was in September 2022, while AAPL came in second place as the most popular stock by number of days.
Figure 2: Top Retail Stocks for the Past 5 Years
Individual investors are not necessarily net buyers of corporate stocks. But in 2024, it will, increasing year-to-date net purchases to about $32 billion. Since June, there have been relatively few days when retailers were not net buyers of businesses as the Fed’s promise to cut interest rates became firm (Exhibit 3, blue bar).
Retailers are still buying ETFs (almost every day)
In contrast, we see that retail investors are net buyers of ETFs (almost) every day (Figure 3, yellow bars). This has increased the ETF by $120 billion since the beginning of the year.
Figure 3: Retail purchases remain strong overall
ETF bond purchases
Importantly, retail investors have turned into net buyers of fixed income ETFs across a wide range of maturities, as expectations for a better rate cut in late 2023 have been postponed until recently. Approximately $26 billion of ETF purchases, or approximately 22% of total ETF purchases, will be allocated to bond ETFs, which will add duration to their holdings as short-term interest rates decline.
Exhibit 4: Retail Bond ETP Purchases at Highest Prices Since the Start of the Fed Rate Hiking Cycle
Retail trade remains above pre-COVID-19 levels
The total market volume is still increasing to approximately $600 billion per day (Figure 5, gray zone). However, some of the current increase is due to market rebound. The higher the price, the easier it is to trade for more value.
To account for market returns, we look at retail trading value ($) and volume (shares) as a percentage of the total market. The data also shows that while retail trade levels are still elevated compared to pre-COVID-19 levels, they have not reached their highest levels in 2020. in fact:
- The transaction value based on our method of identifying retail transactions remains approximately 6.5% of total market transactions (green line), or an average of $38 billion per day.
- Retail trade’s share of distribution is even higher, recently reaching 9% (blue line). That’s because retail businesses tend to trade more in low-priced stocks (increase the number of stocks by more than the amount traded).
Interestingly, we see that in 2022, transaction value (as a percentage of transaction value growth) fell to pre-COVID-19 levels, but has since recovered. Meanwhile, traded stocks appear to have peaked during the meme stock boom of 2021, and have been in an overall modest decline since then.
Figure 5: Retail activity remains high compared to pre-pandemic levels
Retail remains an important source of liquidity
While the data suggests many households have used up their COVID-19 savings, it shows that retail trading in the stock and ETF markets still makes up a significant portion of the market.
That means retail remains an important source of liquidity for many stocks and ETFs.
