Retail traders chase shiny objects but refuse to bet on S&P 500

Retail traders, some of the staunchest supporters of the stock market this decade, are showing signs of waning conviction.

The crowd is hopping in an out of specific stocks at an increasing speed, selling shares almost as aggressively as buying while ignoring the broader S&P 500 Index.

The gap between the cash that’s come into the stock market and gone out in the past four weeks has shrunk to $13 billion, the lowest since the Covid-19 pandemic, according to data from Vanda Research.

The development signals that the cohort has become pickier, chasing specific market themes rather than having a broad conviction in benchmark indexes. Chalk it up to the contours of the stock market, where a measure of dispersion is sitting near a record and gut-wrenching rotations between winners and losers have challenged even institutional pros.

“A selective retail investor is joining what is a very selective institutional investor – one where 2026 has really been a stock picker’s world,” said Viraj Patel, global macro strategist at the firm.

To Patel, the group’s low exposure in US stocks doesn’t necessarily spell doom for the asset class as a whole. Rather, it portrays a picture of the casino crowd that’s ready to bet on whatever appears to be the next big theme, then scatter as soon as the tide turns. 

First, it was energy stocks and silver companies that jumped amid soaring industrial demand and worsening supply shortage. Then, came a big moment for software names, before the sector was ditched for semis. Finally, when SpaceX went public in June, retail traders piled into Elon Musk’s rocket, satellite, and artificial intelligence company and other space-related names. 

“The 2026 retail investor is very different to anything we’ve really seen in the post-Covid years,” Patel said.

Data from sentiment surveys that show risk-on spirits among amateur investors are waning may partly explain the trend.

The number of bears in the stock market has outnumbered bulls in all but four weeks since mid-February, according to the American Association of Individual Investors. For the week ended July 8, 37 per cent of respondents to the firm’s sentiment survey said they were bearish on stocks in the next six months, compared with 36 per cent of respondents who were optimistic.

To Bret Kenwell, US investment analyst at Etoro, a potential slowdown in retail appetite reflects both worries around the broader market and technology stocks that are sitting at lofty multiples following this year’s advance. 

“Chip stocks are consolidating after hefty second-quarter gains, while retail investors may be hesitant to add fresh capital to a sector they view as stretched in the short term,” Kenwell said.

“If investors are indeed sitting on their hands, they may simply be waiting for the current pullback or consolidation phase to run its course before stepping back in.”

Another reason behind the lack of conviction, according to Vanda Research, is that individual investors now have more options for making bets, including in crypto trading, prediction markets and sports betting.

That may help explain a gradual decline in the group’s subsiding participation stock market activity. Retail traders accounted for 17.2 per cent of all US equity trading volume in the first quarter of 2026, above the pre-pandemic levels down from 20.5 per cent a year earlier, according to data compiled by Bloomberg Intelligence.

To be sure, there have been recent periods where individual investors have poured large volumes of money into stocks. They bought a net $8.9 billion of equities this week, above the 12-month average of $6.8 billion, according to JPMorgan Chase & Co.’s Arun Jain.

Even there, however, there are signs of investors being more selective. Retail investors poured $712 million in technology stocks in the week through July 8, the most among 11 sectors, followed by communications shares, which saw a net inflow of $617 million.

“There hasn’t been a clear theme across A...