Key Takeaways:
- Retail traders have not yet exhibited a Fear of Missing Out (FOMO) mentality despite the record-breaking rally in the stock market.
- According to Vanda Research, retail traders are exercising caution when it comes to buying into declines in the stock market.
- Empirical data suggest that retail traders are adopting a cautiously optimistic stance, rather than rushing into the market with blind enthusiasm.
- This cautious approach may reflect skepticism or concern about the sustainability of the market rally, or a preference for a more prudent investment strategy.
- Overall, retail traders’ sentiment appears nuanced, with optimism tempered by a degree of caution and discernment.
Despite the stock market’s rally to record highs this year, retail traders have not embraced a Fear of Missing Out (FOMO) mentality, as noted by Vanda Research. The firm observed that retail traders have been hesitant to aggressively purchase during market declines. Recent fund flow data reveals that retail purchases have decreased to their lowest level since November 2020 on a trailing week basis. This cautious behavior suggests that retail traders are approaching the market with prudence and are not succumbing to the temptation of chasing after rising prices.
According to Vanda Research, retail traders seem hesitant to buy into the current stock market rally, possibly due to a reluctance to purchase at market highs. This caution contrasts with other indicators, such as the CNN Fear & Greed Index, which has shown “Extreme Greed” territory recently, prompting concerns about a potential market meltup akin to the dot-com bubble.
However, options trading data, including activity in speculative areas like AI and crypto-related stocks, suggests a more subdued sentiment among retail traders compared to the frenzy seen during the 2021 meme stock phenomenon with GameStop and AMC. Vanda Research notes that current speculative retail options activity is only a fraction of the levels seen during the GME and AMC bubble.
Despite some speculative trading in popular small-cap stocks, total spending remains relatively low, comprising less than 10% of the levels seen during the GME and AMC frenzy. This muted activity indicates that the “fear of missing out” (FOMO) mentality among retail traders may not be as prevalent as previously observed.
However, Vanda Research suggests that the FOMO mentality could potentially resurface as speculative retail activity evolves. While there may be a perception of significant FOMO in the markets, hard data indicate a cautiously optimistic sentiment among retail traders. The firm believes there is still some distance to go before speculative retail activity reaches concerning levels.