Retail Investors Back Away

Day traders have run out of ammo as inflation and interestrate hikes crimp their tactics

- Paula Dwyer

He could stomach the plunge in global equity markets that devalued his stock investments. He was still willing to stick it out when the money he'd moved into crypto coins with names such as SushiSwap and Avalanche halved in value. But the collapse of FTX Group, where all his remaining savings sit in a locked trading account, was too much for Joseph Pizzoferrato. "Losing $10,000 is crushing me," says Pizzoferrato, who works for a life insurance company in Nevada and began day trading in 2020 while stuck at home during lockdown. "If I do ever go back into crypto, it's going to be just extra money but not anything involving life savings." Pizzoferrato, 33, is fairly typical of the cohort of retail traders who roiled the markets when they took up investing en masse in the Covid-19 pandemic's first two years. The freeze on student loan payments and an historic bull market were on their side. Now, the so-called dumb-money crowd that was beginning to look like a permanent fixture of the financial world seems to have disappeared as quickly as it arrived.

The data show the extent of the rout: Retail traders' returns are down about 40% in 2022, according to JPMorgan Chase & Co. Since the start of 2021, the share of such investors in US equity market volumes has plunged by 40%, according to the bank. Stocks that were once buoyed by the retail crowd are now vastly underperforming the market.

High-flying technology stocks have especially fallen out of favor, as seen in the performance of the ARK Innovation exchange-traded fund, a pandemic darling that's down 63% this year. The buy-the-dip strategy that many small-fry investors use is heading for its worst year in decades, as shown in the negative returns of those who bought shares after down sessions. And according to one measure by market researcher SentimenTrader, confidence among retail investors is hovering near early pandemic lows.