Retail investors are buying stocks wholesale and driving up share prices, a dynamic that is spooking some veteran Wall Street analysts and observers.
According to data released this week, Citigroup’s index of stocks most favored by individual investors, which includes SoFi Technologies, Riot Platforms and Facebook parent Meta, has risen 30% since the beginning of September, compared with a 4.3% gain in the S&P 500.
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JPMorgan Chase says retail investors bought about $7 billion in stocks in the first week of this month, up from about $5 billion a week over the summer. This marks a roughly 40% increase and the fastest pace of retail buying since the meme stock boom of 2021.
Of course, the connection between retail dollars flowing into the market and rising stock prices is not strictly one-to-one. But the directional pressure appears to be unequivocally upward. A 40% increase in purchases does not automatically translate into a 30% profit because prices reflect the push and pull of broader forces, including institutional, algorithmic and other sources of demand.
Still, when billions of new money flows into a handful of popular tech names each week, this can add significant fuel to market rallies. Rising prices attract more buyers, which works to increase prices, which then works to attract even more buyers. It’s a classic feedback loop.
As Interactive Brokers strategist Steve Sosnick put it, “every dip is considered a buying opportunity,” while “uptrends are something to chase.”
Options trading among retail investors has also reached record levels, JPMorgan noted. To Wall Street veterans, the phenomenon may seem eerie because it touches on historical patterns and what we might call the most fundamental view of insiders of institutional versus retail dynamics.
On Wall Street, the old distinction between “smart money” and “dumb money” goes back at least a century. “Smart” money generally refers to institutions such as hedge funds, money managers, and corporate insiders, which are perceived to act early and strategically, guided by research and access.
“Dumb” money has traditionally referred to retail or “mob” investors, who tend to be late to rallies, driven more by headlines and fear of missing out than by fundamentals or poor asset valuations. The line has blurred in the last decade, with the rise of business applications and real-time data, but the distinction endures as shorthand for a familiar cycle.