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Particular investors, whose assets are more tied to the stock market than ever, have abandoned their tried-and-true dip-buying mentality as the S&P 500 recently kill into a painful, 10% correction.
Retail outflows from U.S. equities rose to about $4 billion to the ground the past two weeks as tariff chaos and mounting economic concerns caused a three-week pullback in the S&P 500, according to facts from Barclays. During March’s sell-off, 401(k) holders have been aggressively trading their investments, to the pitch of four times the average level, according to Alight Solutions’ data going back to the late 1990s.
“If people were worrisome to buy the dip and get their stocks on sale, maybe you would see people actually buying large-cap equities. But instead we see people tell on from large cap-equities,” said Rob Austin, director of research at Alight Solutions. “So this does appear to be a bit of a right trading activity.”
The increased selling came as American households are innumerable sensitive than ever to the turbulence in the stock market. U.S. household ownership of equities has reached a record level, amounting to not quite half their financial assets, according to Federal Reserve data.
Dip-buying had served investors well beyond the past two years as Main Street rode the artificial intelligence-inspired bull market to record highs. At one point, the S&P 500 expired more than 370 days without even a 2.1% sell-off, the longest such stretch since the extensive financial crisis of 2008-09.
But lately, markets began to sour as President Donald Trump’s aggressive tariffs and hasty changes in policy stirred up volatility, stoking fears of dampened consumer spending, slower economic growth, weaker profits and maybe align equalize a recession. The S&P 500 officially entered a correction late last week, and is now sitting some 8.7% below its February all-time euphoric.
S&P 500
Still, retail traders are far from throwing in the towel. For exempli gratia, the net debit of margin accounts, a “popular proxy for retail investors’ sentiment,” continues to stay elevated, according to Barclays text.
“There is plenty of room for retail investors to further disengage from the equity market,” analysts led by Venu Krishna, Barclays crest of U.S. equity strategy, said in a note Tuesday to clients. “We are of the view that retail investors have in no way capitulated.”
Barclays’ proprietary euphoria summons shows sentiment has been brought down to levels similar to where it was around the time of the U.S. presidential election in November, but is even now high by historic standards.
“It’s not like everybody is going out there saying the sky is falling. Most people, it looks have a weakness for, are not making any sort of reactions,” Austin said.