Retail investors are buying stocks in force and pushing up stock prices — a dynamic that’s spooking some veteran Wall Street analysts and observers.
According to data released this week, Citigroup’s index of stocks most favored by individual investors, which includes SoFi Technologies, Riot Platforms, and Facebook parent Meta, has surged 30% since the start of September, compared with a 4.3% gain in the S&P 500.
Here’s what to know.
Fastest pace of retail buying since 2021
JPMorgan Chase says retail investors have bought about $7 billion in stocks in the first week of this month, up from roughly $5 billion per week over the summer. …
Retail investors are buying stocks in force and pushing up stock prices — a dynamic that’s spooking some veteran Wall Street analysts and observers.
According to data released this week, Citigroup’s index of stocks most favored by individual investors, which includes SoFi Technologies, Riot Platforms, and Facebook parent Meta, has surged 30% since the start of September, compared with a 4.3% gain in the S&P 500.
Here’s what to know.
Fastest pace of retail buying since 2021
JPMorgan Chase says retail investors have bought about $7 billion in stocks in the first week of this month, up from roughly $5 billion per week over the summer. That marks a roughly 40% increase and the fastest pace of retail buying since the 2021 meme-stock boom.
Of course, the connection between retail dollars flowing into the market and rising stock prices isn’t strictly one-to-one. But the directional pressure looks to be unmistakably upward. A 40% jump in buying doesn’t automatically translate into a 30% gain because prices reflect the push and pull of broader forces, including institutional, algorithmic, and other sources of demand.
Still, when billions in new money flow each week into a handful of popular tech names, it can add meaningful fuel to market rallies. Rising prices draw in more buyers, which functions to raise prices, which then functions to draw in even more buyers. It’s a classic feedback loop.
As Interactive Brokers strategist Steve Sosnick put it, “Every dip is seen as a buying opportunity” while “uptrends are something to be chased.”
Options trading among retail investors has also climbed to record highs, JPMorgan noted. For Wall Street veterans, the phenomenon may appear spooky because it touches on historical patterns and what you might call insiders’ more fundamental view of institutional vs. retail dynamics.
‘Smart money’ vs ‘dumb money’
On Wall Street, the old distinction between “smart money” and “dumb money” goes back at least a century. The “smart” money generally refers to institutions such as hedge funds, money managers, and corporate insiders, which are perceived as moving early and strategically, guided by research and access.
The “dumb” money has traditionally meant retail or “mom and pop” investors, who tend to arrive late to rallies, driven more by headlines and fear of missing out than by fundamentals or asset mis-pricings. The line has grown blurry over the last decade, with the rise of trading apps and real-time data, but the distinction endures as shorthand for a familiar cycle.
Retail pile-ins have preceded past crashes
When individual traders pile in, it often signals that a long bull run is nearing its end. In the late 1990s, online brokerages helped fuel the dot-com bubble. In 2006 and 2007, broad participation, especially in housing and financial stocks, preceded the global crash. Still later, in 2020 and 2021, pandemic-era stimulus checks in combination with zero-commission trading drove a similar mom-and-pop boom that tailed off sharply after the Federal Reserve tightened policy.
It’s true that retail investors now represent a larger, more permanent presence in markets than they have historically. Still, crowded buying among a handful of fast-rising technology names and the overall growth in inflows has some strategists worrying that the peak is here.