Risk Appetite Fades as Retail Investors Exit Hot US Stocks

Retail investors are pulling back high-risk market bets after the longest streak of bullishness in recent years, signaling a potential shift in sentiment that could slow momentum in high-performing US stocks, according to analysts at J.P. Morgan.

A report from the brokerage showed a decline in bullish options activity, with call volumes—typically reflecting expectations for rising prices—falling relative to put volumes, which signal a bearish outlook. This marks the end of a roughly 140-day run of retail bullishness, the longest period J.P. Morgan has recorded since tracking began four years ago.

The retreat suggests that concerns over stretched valuations, a prolonged government shutdown, and uncertainty surrounding interest-rate cuts have eroded confidence among individual investors. Retail risk appetite often functions as a barometer for broader market confidence, particularly in momentum-driven sectors.

The decline in retail sentiment was most pronounced in the technology, media, and telecom (TMT) shares. J.P. Morgan analysts noted that the pullback could benefit hedge funds holding short positions, but equity long/short strategies might suffer.

The retail trading segment, once dismissed as a fad, has helped cushion market selloffs in recent years by treating dips as buying opportunities. However, the slipping sentiment suggests this safety net may be receding.

Separately, a note from Goldman Sachs on Sunday indicated that share buying by retail investors remained strong across the tech-heavy Nasdaq 100 and the benchmark S&P 500. The coming decisions of these investors will be crucial in testing the market's resilience through the end of the year, particularly given ongoing questions regarding current stock valuations.

Wall Street's main indices lost ground last week, breaking a three-week winning streak.