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Bull market dares retail traders to take risky bets
As rising shares of artificial-intelligence leader Nvidia and bets on easy money have pushed U.S. stocks to record levels, retail traders have begun to make risky bets after recouping all of their losses from the past two years. The S&P 500 has risen 9% this year, thanks in part to a 72% jump in its top performer, Nvidia, which has the highest weighting in the average retail investor's portfolio at 9.3%. This has helped wipe out all of the losses in the average individual investor's portfolio since the bear market began in 2022, according to Vanda Research. According to Vanda Research, this has helped the average individual investor's portfolio erase all losses since the start of the 2022 bear market.
By Medha Singh
(Reuters) - As rising shares of artificial intelligence giant Nvidia and bets on easy money pushed U.S. stocks to record levels, retail traders began to make big, risky bets after recouping all their losses over the past two years.
The S&P 500 has risen 91 TP3T this year, thanks in part to a 721 TP3T jump in the top-performing stock, Nvidia, which has the highest weighting in the Retail Average Portfolio at 9.31 TP3T.
This has helped the average individual investor's portfolio erase all losses since the start of the bear market in 2022, according to Vanda Research.
"The willingness of retail (traders) to take on more risk has increased significantly as the focus has shifted from recovering losses to making new highs," said analysts Marco Iachini and Lucas Mantle of Vanda Research.
Individual investors have increased their purchases of triple-leveraged exchange-traded funds (ETFs), which are a means for day traders to make short-term bets, sometimes tracking double or triple daily returns on an underlying index or stock.
The 10-day average of U.S. retail traders' purchases of ProShares UltraPro QQQ, which triples the daily volatility of the Nasdaq Resonator 100 Index, reached a roughly two-year high in mid-March, according to Vanda Research.
Meanwhile, investment in Direxion Daily Semiconductor Bull 3X Shares has reached its highest level this year in at least three years.
Retail traders' high-risk, high-money trades are gaining traction as risk appetite improves and investors are putting new money into them, with hot tech stocks benefiting from the AI boom.
"Tech stocks are a favorite among retail investors on global platforms, with all of them dominating the top 10 most held stocks," said Ben Laidler, global market strategist at digital broker eToro.
Lederer added that artificial intelligence and "scavenger" semiconductor stocks Nvidia, Advanced Micro Devices and Taiwan Semiconductor have seen the biggest increases in their holdings this year.
New capital invested in U.S. stocks jumped 52% sequentially in the first quarter, reaching the highest level since the same period in 2022, according to eToro.
The strong following of individual investors in former U.S. President of Massachusetts Donald Trump's loss-making Trump Media and Technology Group is another sign that speculative trading is on par with the thematic stock frenzy of 2021, although wider trading activity has fallen far short of the levels seen three years ago. The wider trading activity is far from the levels seen three years ago, though.
"We are still slightly below 2021 levels in terms of volume and turnover," Laidler said.
Analysts point out that while the first quarter is the strongest season for retail purchases, the pace of purchases typically wanes towards the end of the year.
KBW analysts said in a note that there may be reasons for the recent re-acceleration in retail transactions, but "we expect retail activity levels to slow from Q1 levels and 竝 taper off through 2025.
(Reporting by Medha Singh in Bangalore; Editing by Shinjini Ganguli)
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