Retail investors haven’t lost confidence in the bull market in stocks (yet) despite a tough start to the year, according to new data from Bank of America’s strategy team of Savita Subramanian and Jill Carey Hall.
“BofA Securities clients were small net buyers of U.S. equities the first week of 2022 ($0.5 billion), during which the S&P 500 fell 1.9%. Clients bought both ETFs and stocks. Retail and hedge funds clients led the buying last week while institutional clients began the year with their biggest weekly outflows since mid-Jan. of last year. Clients bought stocks across all three size segments (large/mid/small),” the pair wrote in a new research note on Tuesday.
That confidence in markets by retail investors is being put to the test again this week.
Stocks reversed pre-market gains on Tuesday as traders watched Federal Reserve Chair Jerome Powell testify in front of lawmakers. The Fed chief told lawmakers inflation remains a major concern in part because of supply chain bottlenecks caused by the pandemic.
“There are actually hard constraints,” Powell said of the economy amid the ongoing pandemic, which has triggered higher car prices and semiconductor shortages.
Tuesday’s tepid action comes on top of a lackluster session Monday.
The S&P 500 dropped more than 2% at session lows on Monday as investors took their cue from the 10-year Treasury yield’s march to 2% amid inflationary worries. Stocks ended the session slightly lower.
Meanwhile, the Nasdaq Composite turned slightly positive, erasing earlier losses to end a four-day losing streak. Selling pressure continued, however, in high P/E multiple names such as Meta (formerly Facebook), Amazon and Palantir.
The Dow Jones Industrial Average, S&P 500 and Nasdaq are all down in January, paced by a 5.5% drop for the Nasdaq.
The weakness in stocks this month have led to prominent firms on Wall Street to recommend investors buy the dip.
“There is some great stuff you should pick up right now, and other stuff that you have to be a little bit more cautious on. In particular, I would say it might be time to start hunting around in the tech and software space. Some of those areas that have been disproportionately punished in the first six trading days of the year,” said BlackRock’s head of thematic strategy for the global allocation Kate Moore on Yahoo Finance Live.