Stocks have rebounded from a tough 2022, but retail traders are still feeling the pain.
The average retail investor portfolio is “still deeply” down by about 27% this year, according to data compiled by VandaTrack Research. Investors have reason to sit on the sidelines. According to VandaTrack, since the peak in November 2021, stocks have staged four double-digit bear market rallies. Tech stocks in particular rallied more than 20% — twice.
“As equities currently sit at similar bear-market-rally peaks, we suspect that retail investors will remain hesitant to raise their risk exposure as they got burned multiple times last year,” analysts at VandaTrack wrote in a note on Thursday. “In addition, growing recession risks could become a stronger headwind holding retail animal spirits at bay.”
Wall Street had a turbulent 2022, clocking in its worst year since the 2008 financial crisis and wrapping up a three-year streak of gains. Inflation, rate hikes and pandemic lockdowns in China plagued all financial assets last year.
Stocks rebounded in 2023, with the S&P 500 posting its best rally since last August, according to Morgan Stanley.
However, it’s unclear the good times are here to stay. With earnings season underway – companies on the S&P 500 are projected to post about a 7% decline in first-quarter earnings from a year ago, John Butters, a senior earnings analyst at FactSet wrote in a report Thursday.
Reports from tech companies will be critical as tech stocks have outperformed this year, pushing the Nasdaq 100 (^NDX) into a bull market. Some prominent analysts have voiced concern that the rebound in tech could be running out of steam.
Still, this group of traders remain concentrated in high-profile stocks like Apple (APPL), Tesla (TSLA), which account for about 30% of the average retail investors’s portfolio, VandaTrack found, while Nvidia (NVDA), and Advanced Micro Devices, Inc. (AMD) account for 10% of their portfolio.
From these stock picks, NVDA has had a notable rally, up 84% this year given the excitement around Chat GPT and AI engulfing the market.
But VandaTrack strategists warn that earnings weakness from the four names could be a “heavy hit” to the individual investor.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv