(Bloomberg) -- President Donald Trump’s trade war at least temporarily dashed individual investors’ optimism about the US stock market, setting-off a record setting stampede for the exits just after Tuesday’s opening bell.
In the first hour of trading, the so-called retail investors yanked $1.2 billion out of the US equity market — the largest pullback during that time period since JPMorgan Chase & Co.’s data begin a decade ago, according to Emma Wu, the bank’s global quantitative and derivatives strategist. The pullback from single stocks reached $1.1 billion and was broadly distributed across sectors.
The exodus is another example of how much the uncertainty cast by Trump’s policy shifts have upended the direction of financial markets, where bullish sentiment among individual investors had recently surpassed levels seen even during the meme-stock mania of 2021, according to Wu. The pullback caused a steep market drop, with the S&P 500 Index tumbling as much as 2% before clawing back much of the decline on wagers Trump could eventually reverse course.
“There is likely some profit-taking going on because those with a lower risk tolerance will likely stay on the sidelines until some of the tariff uncertainty clears,” said Jim Worden, chief investment officer of Wealth Consulting Group.
That said, the smaller investors still appear relatively optimistic on some segments like Big Tech, with the so-called Magnificent Seven stocks only accounting for 20% of the total pullback on Tuesday.
And this year, the retail investors have typically bought any dips, wagering on a rebound, even as hedge funds and other institutional investors have been doing the opposite by selling when it rebounds.
Historically, a disconnect between the two like that has been viewed as a negative indicator for the stock market’s direction, since large institutions eventually are seen as holding far more sway. Moreover, Goldman Sachs Group Inc. traders wrote in a note to clients in late February that retail-investment flows were already fading, due in part to news of a building US-led trade war.
“Tariff trading is relatively new for most investors and I believe that adds another wrinkle to the level of angst for retail traders,” said Scott Colyer, chief executive at Advisors Asset Management. “These ‘flush’ events are always good to wring out the speculation.”
