US stock market: retail investors are currently experiencing a buying frenzy in the U.S. stock market, eagerly seizing opportunities to purchase shares at lower prices.
January's inflation report exceeded expectations, leading to a brief sell-off in the stock market. Yet, retail investors quickly stepped in to buy shares at lower prices, helping the S&P 500 index (SPX) recover some of its losses. On Wednesday, the index dipped by as much as 1.1% during trading but closed down only 0.3%.
Scott Rubner, Goldman Sachs' chief technical strategist and flow expert, noted in an email to clients that retail investors were actively buying after the CPI data was released. "Everyone is in the 'pool,' including retail traders, inflows from 401(k) plans, year-end allocation demands, and corporate buybacks," he explained. This "pool" concept is derived from Warren Buffett's saying: when the tide goes out, you discover who has been swimming naked.
Despite the current enthusiasm, Rubner warns that this trend could soon reverse. "This will be my last bullish email for the first quarter of 2025," he stated, citing rapidly changing dynamics in fund demand as we approach negative seasonal factors.
The S&P 500 index has risen 3% since the beginning of the year. Even after a period of sideways trading in December, the U.S. stock market has shown remarkable resilience. Concerns surrounding DeepSeek and tariffs from President Trump have not triggered widespread corrections. The swift rebound after the CPI data release is a testament to this resilience.
Currently, E-mini S&P 500 futures hover near the 50-day moving average, a critical threshold now under scrutiny. Rubner's analysis of Commodity Trading Advisors (CTA) suggests that if the market declines, their selling pressure will far exceed buying demand during uptrends.
"I firmly believe that this strong buying momentum is beginning to wane," Rubner commented. He noted that some trend-followers have an asymmetrical bias toward the downside. If the market falls, CTAs are expected to sell about $61 billion in U.S. stocks over the next month, compared to only $10 billion in potential purchases if the market rises.
Seasonal Trends and Corporate Buybacks
January and February are typically the months when 401(k) plans and 529 education funds see the most inflows into U.S. stocks, but Rubner anticipates this trend will soon dissipate. Companies are currently engaged in record stock buybacks, with $1.16 trillion planned for the year, but this activity is expected to slow after March 16.
Additionally, Rubner pointed out that hedge funds have recently reallocated significant risk exposure across global markets, leading to the largest net buying in global stocks in two months.
Retail Investor Activity
Retail investors have net purchased U.S. stocks for 22 consecutive days, with three of those days seeing unprecedented levels of so-called "imbalance." However, Rubner believes this trend may be difficult to sustain.
Historically high retail trading volumes were recorded in January, highlighting the intense interest from individual investors. As market conditions evolve, the sustainability of this buying momentum remains uncertain, prompting investors to stay vigilant.
In summary, while retail investors are currently active and undeterred by inflationary pressures, expert warnings suggest that the situation may be changing. The dynamics of market demand and the potential for a shift in investor behavior could influence the market landscape in the coming weeks.
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