US retail investors push up summer stock prices

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Record levels of stock purchases by retail investors helped push US stocks higher during the summer months, and were the “dominant force” driving a relentless rally in the market, JPMorgan analysts say.

Net purchases by US retail investors of stocks and exchange-traded funds rose to record levels in the summer, following significant inflows throughout the year, according to a measure calculated by the bank to focus on retail activity.

The S&P 500 index of top US stocks has risen 20 percent so far this year. “As long as this retail flow continues, the stock market will continue to rise,” said Nikolaos Panigirtzoglou, cross-asset research analyst at JPMorgan.

“If that flow stops and we start to see material outflows – especially from equity ETFs – then we should start to worry about the equity market, because it would mean that the attitude of retail investors towards equity markets is changing. “, he said.

Global equity fund inflows, which analysts view as another indicator of retail purchases, have surpassed $689 billion so far this year, breaking the previous 2017 annual record.

Retail investors attracted a lot of attention early this year when thousands of traders, hosted on the social media platform Reddit, pumped up the prices of historically unloved stocks such as video game retailer GameStop and cinema chain AMC Entertainment, sparking spectacular rallies.

The frenzy of buying and selling around these so-called meme stocks led to a spike in retail volume, but the net amount of cash flowing into the markets from retail investors peaked during the summer boom, according to data from JPMorgan.

“If anything, that retail flow has been accelerating lately. It’s more like a melt-up,” says Panigirtzoglou. “The problem with melt-ups is that they don’t last forever.”