Retail investors are buying the dip in financial stocks in unprecedented amounts

Published Fri, Mar 17 202311:29 AM EDTUpdated Fri, Mar 17 202312:16 PM EDT

Retail investors are buying financial stocks in unprecedented amounts after the sector's recent rout, according to Vanda Research. Banks have been pummeled in the wake of Silicon Valley Bank's collapse and concerns over Credit Suisse 's financial situation. Regional bank stocks were particularly hard hit as investors worried whether they had balance sheet issues similar to SVB. The volatility continued Friday, a day after the sector rallied on the hopes of a solution for First Republic , the worst performer of the group. On Thursday, a group of financial institutions struck a deal to deposit $30 billion in the bank. First Republic has the third-largest share of uninsured deposits — behind SVB and crypto-focused Signature Bank, which also shut down this past week. KBE 5D mountain SPDR S & P Bank ETF five-day performance The volatility in regional banks had retail investors turning to the "traditional 'too-big-to-fail' banks," Vanda Research's senior vice president, Mario Iachini, wrote in a note Thursday. Over the past week, they have experienced "a surge in retail investors' purchases of their stock as fears of more bank failures are hitting smaller, regional banks hard," he added. While inflows trickled down Thursday, as of Wednesday, Charles Schwab experienced the second-most inflows after Bank of America over the past week, Vanda Research data show. The firm's CEO, Walt Bettinger, also bought 50,000 shares Tuesday for his personal account, he told CNBC. "That much confidence I certainly have in this company," he said in a Tuesday interview on CNBC's " The Exchange ." He also said Schwab is still experiencing "significant" inflows amid the banking crisis. SCHW 5D mountain Charles Schwab's five-day performance "The broker remains a top pick for analysts and individual investors alike," Iachini said. "It also undoubtedly helped sentiment that ~80% of SCHW deposits sit within the FDIC limits." Some investors were also buying shares of First Republic Bank, PacWest Bancorp and Truist Financial . They are "riskier bets that could potentially offer massive upside if regulators or the private sector manage to prevent banking risks from becoming systemic," Iachini said. In the overall stock market, the biggest day of buying activity was Wednesday. Retail investors bought nearly twice as much as the previous week's daily average, totally $1.43 billion in purchases, according to Vanda Research. The firm expects that buying to continue, particularly in financials and energy, as long as a systemic crisis is avoided. "However, if the downturn spreads to less-cyclical sectors to a similar extent and the sell-off were to accelerate, we'd expect to see a continued decline in retail flows, potentially sparking a risky negative feedback loop for US stocks," Iachini wrote.