MW Retail investors didn't chase the post-election rally - why that's good news for the stock market

By Steve Goldstein

Buying after the election was nowhere near the buy-the-dip action of the summer

It would seem logical for individual investors to be drawn into the stock-market frenzy that followed the convincing win for President-elect Donald Trump.

But they weren't. Analysts at Vanda Research, who track retail stock-market activity, found buying relatively muted compared to the gains in the stock market.

Vanda's Marco Iachini and Lucas Mantle say there's a number of reasons for the restraint. For one, retail investors did deploy their capital earlier in the year, when the stock market slumped in August. And they had been buying fairly steadily before the election as well.

But another point is that retail investors historically show restraint when investing near all-time highs. And finally, some investors wanted to lock in profits, in particular in regional banks. "When considering the above factors, retail's reaction to the election results looks fair. On balance, the retail cohort is sitting pretty comfortably following two years of solid equity gains (particularly in tech/semis), and the election uncertainty is no longer a concern," they say.

That lack of euphoria is good news, as contrarian analysis often shows. (The latest American Association of Individual Investors poll similarly showed only a modest increase in bullish sentiment.)

The Vanda analysts note that individual investors in particular did not chase the small-cap stocks IWM higher. "With some new dry powder in hand, should momentum in small caps persist, we expect retail traders to start chasing price action more aggressively from here," they say.

Another positive they identify: a lack of tax-loss selling in December. Retail flows are often depressed in December due to investors selling their losing positions. "After all, if most portfolio holdings are in the green, tax-loss selling will inevitably be limited," they say.

The analysts say retail demand for Tesla may come down to how Nvidia does when it reports results later this month. "Another blow-out report could keep individuals focused on NVDA. In contrast, a consensus-matching result could turn into a 'sell the news' event, allowing TSLA to regain the top spot among retail purchases," they say.

The market

U.S. stock futures (ES00) (NQ00) eased after the big week. Chinese stock futures slumped as authorities increased the local government debt ceiling but said they were still working on other initiatives, news which also pressured crude-oil futures (CL00).

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              5973.1     4.69%   3.34%   25.23%  37.40% 
   Nasdaq Composite                                                     19,269.46  6.49%   5.40%   28.37%  42.51% 
   10-year Treasury                                                     4.308      -8.90   20.30   42.71   -31.40 
   Gold                                                                 2695.7     -1.84%  0.80%   30.11%  38.76% 
   Oil                                                                  71.23      2.74%   -5.64%  -0.14%  -7.91% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

DraftKings stock $(DKNG)$ fell in premarket trade as the betting company cited unfavorable sports outcomes for cutting its revenue and profit outlook.

Pinterest $(PINS)$ guided for revenue that at the midpoint was below analyst expectations.

Agilon Health $(AGL)$ reported a "challenging Medicare Advantage environment" as its stock tumbled.

BlackRock $(BLK)$ is in talks to take a stake in hedge-fund manager Millennium Management, according to the Financial Times.

The University of Michigan's consumer sentiment index is due for release, the highlight of a quiet post-Fed economics calendar.

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The chart

Analysts at Citi led by Keith Horowitz say they're not expecting bank earnings per share revisions to be as strong as the last time that Trump was elected. This chart shows that bank BKX valuations also are starting from a higher point than they were in 2016. The analysts upgraded Bank of America $(BAC.SI)$ to buy on the view that multiples in the sector will converge.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   DJT     Trump Media & Technology 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing 
   SMCI    Super Micro Computer 
   PLTR    Palantir Technologies 
   AAPL    Apple 
   NIO     Nio 
   AMZN    Amazon.com 

Random reads

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An escaped kangaroo, who hopped away from a bear, has been found in Florida...

... while 43 monkeys are on the run in South Carolina.

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-Steve Goldstein

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November 08, 2024 06:38 ET (11:38 GMT)

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