According to JPMorgan, Americans are pouring so much money into U.S. stocks that the overall market’s valuation now heavily depends on their enthusiasm. Individual investors have taken center stage as the largest holders of U.S. equities, owning about 60% of the market, as reported by the financial giant. This unprecedented level of ownership is causing a direct link between the S&P 500’s price-earnings ratio and the flow of retail investment into the market.
Strategists, including Nikolaos Panigirtzoglou, mentioned in a client note, “The more eager U.S. households are to include equities in their portfolios, the pricier the stock market becomes, and the opposite holds true.” This also implies that if these households decide to pull out of stocks, it could potentially lead to a drop in market valuation. Such a scenario seemed more likely when President Donald Trump’s protectionist trade policies fueled fears of an economic downturn, which resulted in the S&P 500’s three-week slide into correction territory.
There are initial indications that retail investors may have stopped buying during the market downturn, as JPMorgan observed that this group appears to be hesitant with their equity positions post-correction. In the first quarter, U.S. households were holding 42% of their financial assets in equities, a slight decrease from the record 43.5% in the previous quarter, according to JPMorgan.
The rise of trading platforms like Robinhood has fueled an investing surge on Main Street, allowing small investors to capitalize on the bull market’s highs over recent years. While the S&P 500 has recouped some of its losses, it remains roughly 7% below its peak from February.
