Retail investors were big buyers of the post-Fed rally. What they are adding

Published Wed, Mar 23 202212:13 PM EDTUpdated Wed, Mar 23 20221:22 PM EDT

The stock market rally following the Federal Reserve meeting last week — spurring the averages' best week since 2020 — was large in part due to amateur investors, research suggests. Retail investor purchases of U.S. stocks and ETFs have rebounded back to year-to-date averages, around $1.3 billion per day, since last week, according to Vanda Research. "We suspect that the post-FOMC rebound was largely driven by the strong retail demand for equities," said Marco Iachini, senior vice president at Vanda Research. "Despite rising yields and increasing worries of a Fed-induced growth slowdown, we argue that retail investors' (typically optimistic) contrarian bid is having a greater influence on equity markets near-term given light institutional speculative investor positioning." Following the Federal Reserve's first interest rate hike in more than three years, stocks experienced their best week since November 2020. The Nasdaq surged more than 8%, and the S & P 500 rallies more than 6%. The Dow Jones Industrial Average ended the week about 5.5% higher. It was an unusual reaction as many big investors had feared a rate hike may cause stocks to stumble. Vanda Research noted that individual investors jumping in and driving the upward action in itself was unusual, since retail investors are typically contrarian investors. "The increase in purchases suggests that institutional investors (on the other side of the trade) were likely hesitant to chase the rally at first — while market makers mechanically bought equities as we approached and moved past Friday's quad witching," said Iachini. "This could explain the unusual divergence between the move in rates (prices down, yields up) and growth stocks (up)." (Quad witching refers to an options expiration phenomenon which forces a lot of buying and selling by big institutions.) While retail buying typically doesn't sway markets, its influence was pronounced as the buying was largely concentrated in growth stocks, which account for a large portion of market cap. Examples of these stocks are Nvidia , Tesla and Apple , a few of retail investors' favorites. Here are some of the other most popular retail purchases in the past five days, according to Vanda. Chip stock Advanced Micro Devices is a staple on the retail list. Other names that individual investors bought into since the Fed meeting are Meta Platforms , Alibaba , Intel , Microsoft , Bank of America , Occidental Petroleum and Ford Motor Co .

Investors looking at retail sales and earnings results out from major U.S. companies later this week.

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The stock market rally following the Federal Reserve meeting last week — spurring the averages' best week since 2020 — was large in part due to amateur investors, research suggests.