Recently, subtle shifts have emerged in the U.S. stock market. A report from a team of strategists at JPMorgan, led by Arun Jain, points out that the purchasing power of U.S. retail investors, who were once actively entering the market, is now notably diminishing. Geopolitical risks, especially the escalation of the situation in the Middle East, coupled with ongoing concerns about inflation, are heavily impacting this group’s risk appetite.
In a report released on March 12, the team disclosed that the average weekly stock purchases by retail investors have dropped by approximately 30% compared to earlier periods. Although retail demand broke seasonal patterns and remained strong at the beginning of this year, it has recently shown sustained weakness for the first time. Data indicates that this Monday (March 11) even recorded the highest single-day net selling of individual stocks in a month. Although buying resumed in the subsequent two trading days, the pace remained significantly below the average level seen since the start of the year.
Looking at fund flows, over the five trading days ending Wednesday (March 13), the total net inflow of retail funds fell to $6.7 billion, below the 12-month average of $7.1 billion. Within this, inflows into exchange-traded funds (ETFs) sharply declined by 22% to $6.3 billion. However, in comparison, the purchasing volume for individual stocks was even more dismal, recording only $0.4 billion.
It is worth noting that despite increased market volatility and the S&P 500 falling to multi-month lows due to factors like the deteriorating situation in Iran and high oil prices, retail investors’ stock selection preferences have not completely shifted towards defensives. They remain enthusiastic about the artificial intelligence theme, continuously buying beneficiary stocks related to AI and data center fields, while also paying attention to stocks associated with AI software, products, and commercialization. The JPMorgan team observed that retail investors seem to be funding these AI-related trades by selling non-AI themed components within the S&P 500. In this week’s sector rotation, retail investors’ primary buying targets were concentrated in the technology and non-essential consumer goods sectors, with specific targets including well-known companies such as Nvidia, Broadcom, Microsoft, Oracle, Tesla, and Palantir.
On the macroeconomic front, signals of sluggish economic growth have rekindled market expectations for a Federal Reserve rate cut, leading U.S. stocks to open higher on Friday. At the same time, the job market is facing new challenges from artificial intelligence. Bill McDermott, CEO of software giant ServiceNow, recently issued a warning that as companies leverage AI to enhance efficiency, the proliferation of this technology will pose a severe test for young people entering the workforce. His company’s software can already replace approximately 90% of scenarios relying on human customer service, helping businesses significantly cut recruitment costs. He emphasized that the speed of this transformation may be faster than many anticipate.
Currently, numerous U.S. companies, from fintech firm Block to software company Atlassian, are using AI tools to cut costs and reduce positions. Some experts point out that unlike previous technological revolutions, AI is eroding a large number of white-collar jobs, such as programming and marketing, enabling companies to boost productivity while reducing hiring.
