While others looked for the exits during Tuesday’s selloff, many retail investors saw an opening for more future gains — but what were they getting into?
Daily investors bought $2 billion in stocks and ETFs on Tuesday, as stock markets saw a sharper-than-expected drop in August inflation, Wanda Research reported.
It’s the second-biggest retail shopping day in 2022, researchers said in a note Wednesday. A lot of dip buying in the afternoon and 10 minutes closed, he added.
When the dust settled on Tuesday, the Dow Jones Industrial Average DJIA;
It was down nearly 1,300 points, or 3.9 percent. Meanwhile, the S&P 500 SPX,
Price 4.3% and Nasdaq Composite COMP;
It fell by 5.2% as investors stubbornly expected higher inflation and interest rate hikes to deal with rising prices. The worst daily loss since June 2020 has been reached.
With the Dow Jones Industrial Average down more than 1,000 points, Tuesday’s buying volume was second only to the $2.6 billion on May 5, Wanda Research said. On the day, many investors were shocked by the Federal Reserve’s newly announced interest rate hike after a rally the day before.
Are you seeing a pattern? So do analysts at Wanda Research.
“At the expense of sounding like a broken record, we’d like to remind our readers that retail investors generally do the opposite—they buy the days and reduce their purchases (or outright sales) by days,” they wrote. In Wednesday’s note.
Much of Tuesday’s buying focused on the likes of Invesco’s QQQ QQQ;
tracking the tech-heavy Nasdaq and the SPDR S&P 500 ETF Trust SPY;
It tracks the S&P 500 benchmark, researchers said. Stock option buybacks focused on big names, including Apple AAPL;
and Tesla TSLA,
Related: Hear from Carl Icahn on the Best New Ideas in Money Festival in New York on September 21 and 22. The popular businessman shares his perspective on this year’s wild market trip.
Companies like Apple and Tesla loom large in retail investor portfolios. On Friday, a new index from Robinhood HOOD;
The brokerage app, popular with many new investors, said those companies were among the 10 most-held stocks in its users’ accounts.
(Those who like to go against the grain may want to look at companies in sectors like online advertising, says Philip van Doorn of MarketWatch.)
Despite Tuesday’s rise in spending, retail investor buying sentiment is weakening, Wanda Research said. That’s partly a seasonal trend, analysts say, as investors begin to compete for dollars for holiday spending. But he pointed out that it is a sign of the worst results of 2022 so far.
As of Wednesday, the Dow is down more than 14% year-to-date, while the S&P 500 and Nasdaq are down more than 17% and 25%, respectively. As of early Wednesday afternoon, the three benchmarks were making modest improvements.
But will Tuesday’s bet pay off for average investors? Or is the purchased dip about to turn sour?
Time will tell when worries about failure are looming.
But when we talk about time, it is not market time, but the time spent on the market is the key ingredient for long-term return on investment, financial advisors emphasize.