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These days, it seems that individual investors have taken a step back from their usual strategy of buying stocks when prices fall. This shift comes as the S&P 500, long a staple for many portfolios, recently dipped into a tough 10% correction.
Over the last couple of weeks, retail investors have pulled about $4 billion from U.S. equities. This retreat stems from growing concerns over tariffs and economic headwinds, causing the S&P 500 to slump for three weeks straight, according to Barclays’ data. March saw a flurry of activity as 401(k) holders traded their investments at a rate four times higher than usual, with data from Alight Solutions highlighting a trading spike not seen since the 1990s.
Rob Austin, director of research at Alight Solutions, noted, “If the aim was to snag stocks at a discount, you’d expect large-cap equities to fly off the shelves. Yet, we’re seeing those same stocks being tossed aside, signaling some knee-jerk trading moves.”
American households are indeed feeling every market ripple more acutely now. Nearly half of their financial assets are tied up in equities, marking a new high according to the Federal Reserve. For the past couple of years, buying on the dip has been a winning strategy, as Main Street investors rode the AI-driven bull market to new heights. The S&P 500 enjoyed a remarkable 370-day stretch without even a 2.1% decline, a feat not seen since the 2008-09 financial crisis.
However, recent market conditions have grown murky. Escalating tariffs and abrupt policy shifts by President Donald Trump have injected volatility into the mix, raising fears of reduced consumer spending, slower growth, diminished profits, and the specter of a recession. Last week, the S&P 500 officially hit correction territory, falling approximately 8.7% from its February peak.
Despite the sell-off, retail traders aren’t giving up. Interestingly, margin accounts—a key measure of retail sentiment—remain at high levels, as Barclays reports. “There’s more room for retail investors to step back from equities,” analysts led by Venu Krishna, Barclays’ head of U.S. equity strategy, shared in a Tuesday client note. “Retail investors haven’t thrown in the towel.”
Barclays’ unique euphoria indicator reveals sentiment levels akin to those around the November U.S. presidential election, although historically, they’re still elevated. Austin remarked, “Not everyone is reacting as if catastrophe looms. It seems most investors are staying put for now.”
