Jamie Spencer
Individual investors, whose portfolios are more tied to the stock market than ever before, have begun to abandon their usual dip-buying strategy as the S&P 500 entered a 10% correction.
Retail investors pulled $4 billion from U.S. equities over the past two weeks, according to Barclays data. The turbulence from Trump’s aggressive tariffs and mounting economic concerns triggered a three-week market pullback, pushing investors into a more defensive stance.
Investors Are Selling, Not Buying the Dip
Unlike past market downturns, individual investors are selling rather than buying during this correction.
“If people were trying to buy the dip and get their stocks on sale, maybe you would see people actually buying large-cap equities. But instead, we see people selling from large-cap equities,” said Rob Austin, director of research at Alight Solutions. “So this does appear to be a bit of a reactionary trading activity.”
Data from Alight Solutions shows that during March’s market decline, 401(k) holders traded their investments at four times the usual level—the highest activity recorded since the late 1990s.
Households Are More Exposed to Stocks Than Ever
American households now hold nearly half of their financial assets in equities, a record high according to the Federal Reserve. This increased exposure makes them more sensitive to market swings.
For much of the past two years, retail investors enjoyed an AI-driven bull market. At one point, the S&P 500 went 370 days without a 2.1% drop, the longest such streak since the 2008-2009 financial crisis.
Tariffs and Market Volatility Shake Confidence
Markets have turned decidedly bearish in recent weeks, with President Donald Trump’s tariff policies fueling fears of:
- Weaker consumer spending
- Slower economic growth
- Lower corporate profits
- Potential recession
The S&P 500 is now down 8.7% from its February all-time high, officially entering correction territory.
Retail Investors Have Not Fully Capitulated
Despite the outflows, investors are not completely abandoning stocks.
“There is plenty of room for retail investors to further disengage from the equity market,” Venu Krishna, Barclays’ head of U.S. equity strategy, wrote in a note to clients. “We are of the view that retail investors have in no way capitulated.”
Barclays’ proprietary euphoria indicator suggests that investor sentiment has fallen to levels last seen around the 2024 presidential election, though it remains high by historical standards.
“It’s not like everybody is going out there saying the sky is falling. Most people, it looks like, are not making any sort of reactions,” said Austin.
What’s Next?
With ongoing economic uncertainty and continued market volatility, the question remains: Will retail investors return to their dip-buying habits, or has sentiment truly shifted?
