Retail investors flow into stocks again for fear of missing out on rally

After months of selling, retail investors are buying stocks again as the fear of missing out appears to have taken root within this group amid the ongoing rally in equities.

Retail investors acquired a net $5.66 billion in stocks in February, the second straight month of buying stocks after the group sold off a net $102.19 billion in the last nine months of 2023, according to the latest S&P Global Market Intelligence data. The group has sold off an average of $7.04 billion in stocks on net each month over the past 12 months but has bought a total of $11.27 billion in the first two months of 2024, the data shows.

"For retail, [fear of missing out] is returning as individual investors that had started taking profits start missing out on gains in the broader market," said Christopher Blake, executive director for S&P Global Issuer Solutions.

Retail investors have likely been drawn back to buying stocks by outsized gains from numerous technology stocks, including NVIDIA Corp., similar to how a short squeeze of GameStop Corp. and other so-called meme stocks drew investors to equities back in early 2021.

"The idea of finding a high risk/high reward single security investment often helps drive overall retail investing activity," Blake said.

Hedge funds also boosted their stock purchases in February, buying a net $8.76 billion during the month, up from $7.60 billion in January and $2.41 billion per month on average over the past year.

Conversely, institutions sold a net $19.63 billion in stocks in February, down from $20.30 billion in January but above the $18.34 billion unloaded each month on average over the past year.

"With overall market performance so far this year, outflows from institutions are once again being more driven by the shift of capital from active investing into passive investing," Blake said.

Institutional flows

Institutions boosted their buying of IT and real estate stocks in February, a reversal of the selling of stocks from these two sectors in January.

From January to February, institutions increased the selling of energy and consumer discretionary stocks, the most divestment of any sectors during the period.

Retail, hedge fund flows

Both retail and hedge fund investors increased their flows into utility stocks, a sector that typically serves as an alternative to fixed-income investing at times of low interest rates due to the stability and dividend yields they can offer.

Considering that rates are relatively high, the move by investors into utilities appears to signal that hedge funds and retail investors are anticipating rate cuts in the near term or looking at finding value in the sector even as fixed-income alternatives are available, Blake said.