Over the past few years, retail investors have been all too happy to buy the dip whenever the market turned sour. But this time around, investors are wary that the latest market selloff isn’t a dip—it’s a cliff.
Retail traders are watching Trump’s aggressive, ever-shifting tariff policies, as well as an economy flashing warning signs, and taking them as signals that the selloff that wiped out about $4 trillion in market value in the last month will escalate into a full-blown downturn.
For proof, just look at where retail investors are putting their money. Last week, money market holdings climbed to a record high of over $7 trillion, and retail investors alone added about $30 billion to the safe haven funds just last week. Traders who would once be chomping at the bit to buy low are instead turning to hedges like gold, which saw its largest four-week inflow ever last month, according to Bank of America.
And take a look at where investors are fleeing from: The last week of February also saw a record outflow from crypto, a retail favorite, according to BofA. Retail traders are also asking more questions and seeking more financial advice, Reuters reported. Other retail favorite investments—such as Palantir, Reddit, Tesla, and Nvidia—have fallen the hardest during the tariff-induced market panic of the past week.
To be clear, not all retail traders are staying away from stocks. Last week, retail traders were still net buyers of stocks, at least on Monday, according to JPMorgan.
Trading the trading platforms
As regular investors step back from the market, brokerages—the platforms powering rabid, screen-addicted day traders—have watched their own stocks take a direct hit.
Making sense of market moves
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Robinhood dropped a staggering 19.8% on Monday, its worst day since August 2021. Charles Schwab fell 4.5% on Monday, and Interactive Brokers dropped 13% that same day. When active trading dwindles, transaction fees and interest payments—the lifeblood of these platforms—drops, weighing on their bottom lines. Although all three of these companies tumbled yesterday, they’re all up today, illustrating that perhaps investors are seeing an opportunity to buy the dip after all.
The bottom line: So, are investors making a wise move sitting on the sidelines amid uncertainty, or missing a huge opportunity? It’s a question that speaks to the torturous mystery of the human experience itself.
“It’s an uncomfortable feeling not knowing whether a 5% drawdown will turn into a 25% bear market, but some things in life are unknowable. Actually, most things are,” wrote Director of Global Macro at Fidelity Investments Jurrien Timmer. “All we can do is construct and calibrate our portfolios so that we can optimize risk-adjusted returns without losing too much sleep.”—LB