Retail investors are sitting on heavy losses despite a 2023 stock rally
Stocks have rebounded from a tough 2022, but retail traders are still feeling the pain.
The average retail investor portfolio is down by about 27% since November 2021, according to data compiled by VandaTrack Research. Since then, stocks have staged four double-digit bear market rallies. Tech stocks in particular rallied more than 20% — twice.
“As equities currently sit at similar bear-market-rally peaks, we suspect that retail investors will remain hesitant to raise their risk exposure as they got burned multiple times last year,” analysts at VandaTrack wrote in a note on Thursday. “In addition, growing recession risks could become a stronger headwind holding retail animal spirits at bay.”
Wall Street had a turbulent 2022, clocking in its worst year since the 2008 financial crisis while ending a three-year streak of gains. Inflation, rate hikes, and pandemic lockdowns in China plagued all financial assets last year.
Stocks have rebounded in 2023, with the S&P 500 posting its best rally since last August, according to Morgan Stanley.
However, it’s unclear the good times are here to stay.
As earnings season gets underway the S&P 500 is projected to post about a 7% decline in first-quarter earnings from a year ago, according to data from FactSet.
Reports from tech companies will be critical as tech stocks have outperformed this year, pushing the Nasdaq 100 (^NDX) into a bull market. Some prominent analysts have voiced concern that the rebound in tech could be running out of steam.
Still, this group of traders remain concentrated in high-profile stocks like Apple (APPL), Tesla (TSLA), which account for about 30% of the average retail investors’s portfolio, VandaTrack found, while Nvidia (NVDA), and Advanced Micro Devices, Inc. (AMD) account for 10% of their portfolio.
From these stock picks, NVDA has had a notable rally, up 84% this year given the excitement around Chat GPT and AI engulfing the market.
But VandaTrack strategists warn that earnings weakness from the four names could be a “heavy hit” to the individual investor.
