U.S. retail investors are showing increasing caution in the face of a declining stock market. Many are seeking additional investment advice, questioning whether to buy the dip, and looking for safer investment options, according to strategists and wealth advisors. Investor concerns regarding potential economic fallout from Donald Trump’s tariffs are contributing to a significant sell-off in equities, which has resulted in a staggering $4 trillion loss from the S&P 500’s peak reached last month. This environment has altered investor behavior substantially.
Joe Mazzola, head of trading and derivatives strategy at Charles Schwab, noted a decrease in dip buying, indicating that investors are stepping back. Signs of risk aversion began to emerge among retail clients in mid-February, with those holding larger portfolios becoming net sellers of stocks. Andrew Graham, managing partner at Jackson Square Capital, has responded by increasing cash reserves in client accounts to the highest level seen in five years, especially since the economic threats posed by the pandemic. Currently, cash constitutes over 10% of many of his clients’ portfolios, and he continues to sell stocks to build cash.
Clients are more proactive in attending their quarterly reviews, reflecting a sense of worry about market conditions. While many investors are cautious, not everyone shares this sentiment. Data from Vanda Research indicates that, as of last week, retail investors remained net buyers of popular stocks, such as Palantir, and leveraged exchange-traded funds have continued to attract interest. As wealth advisors redirect clients away from overvalued market segments, they observe that not all sectors faced the same level of decline.
There are indications of a rotation in the market, with energy and utilities showing resilience. Nonetheless, caution prevails, as advisors, including Nate Garrison from World Financial Advisors, emphasize the importance of being careful with major investment decisions amid ongoing market risks.