Retail investors have been on an unprecedented buying spree this year, pouring in record amounts of money into the stock market despite looming concerns about inflation, higher interest rates, and geopolitical tensions. According to Vanda Research, an average of $1.5 billion has been spent daily on stocks since the beginning of the year.[0]
This comes as no surprise to those who remember the meme-stock frenzy of two years ago, where everyday traders drove the market higher in the face of Jerome Powell’s hawkishness.[0] Now, with the New York Fed’s Recession Probabilities Model putting the odds of a recession at 57%, the highest it’s been in four decades, retail investors remain undeterred.[0]
But as we approach tax day in mid-April, market flows could begin to decelerate.[1] According to Vanda, selling (or rather, less buying) generally occurs across all securities in April, as investors hold back their investments to build cash to pay their tax liabilities.[1]
However, Vanda expects retail inflows into stocks to pick up towards the end of the second quarter, based on seasonal data.[2] In the face of continued market volatility, investors may be tempted to jump in on some ill-conceived optimism, but at the end of the day, it pays to heed the old adage, “don’t fight the Fed.[0]
0. “Reddit’s army of retail investors is partying like it’s 2021” Business Insider, 23 Feb. 2023, https://www.businessinsider.com/reddit-retail-investors-investing-markets-wall-street-meme-stocks-fed-2023-2
1. “The retail trading frenzy that sparked a FOMO trade this year may be about to slow, and that’s bad news for the stock market” Yahoo Canada Finance, 23 Feb. 2023, https://ca.finance.yahoo.com/news/retail-trading-frenzy-sparked-fomo-192804989.html
2. “The stock market is about to drop as the retail FOMO trade fades away” Markets Insider, 23 Feb. 2023, https://markets.businessinsider.com/news/stocks/stock-market-retail-day-traders-fomo-trade-outlook-tax-season-2023-2