Individual investors have waded back into the stock market after laying low through the worst of this year's selloff. But don't call it a comeback yet.
So-called retail investors in the last two weeks have ramped up purchases of stocks and bullish call options, helping send meme stocks, such as Bed Bath & Beyond Inc. and AMC Entertainment Holdings Inc., skyrocketing. So far in August, both stocks have logged gains of at least 68%, putting Bed Bath & Beyond on pace for its best month in history.
The excitement hasn't been limited just to meme stocks. Earlier this month, small traders' purchases of bullish call options jumped to the highest level since April. Comments have also recently spiked on Reddit's WallStreetBets forum, a popular online watering hole for amateur traders, according to TopStonks.
Individual investors have purchased an average of $1.35 billion a day of U.S. stocks and exchange-traded funds on a net basis so far this month, according to Vanda Research through Thursday. That puts their purchases on pace for their highest monthly average since January, the month when the recent bull market peaked.
The clamor is reminiscent of the speculative fervor that cascaded over markets in 2020 and 2021, when millions of Americans got hooked on trading stocks, options and cryptocurrencies. Stuck at home during the Covid-19 pandemic and flush with stimulus checks, newbie traders banded together on online forums, pushing up shares of favorite stocks. Some made small fortunes. Others lost big.
This month is different. For one thing, individual investors' activity is still well off the record highs notched last year. Fears about decades-high inflation and a possible future recession continue to loom, confounding professionals and rookies alike on where the stock market might go from here.
Patricia Steiding, a 59-year-old office manager in California, has her future retirement on her mind, and she worries about inflation eating into her savings.
Ms. Steiding scooped up shares of meme stocks like AMC and fuboTV Inc. last year. This year, when the market turned downward, she took a break from active trading. The best place for her extra cash, she thought? Her retirement account.
Now she feels ready to start adding positions again in her E*Trade self-directed brokerage account, and she is focused on finding beaten-down stocks that could benefit as consumers keep spending. She is considering buying shares of cruise line Carnival Corp., as well as some airline stocks.
There seems to be "a little more stability in the market," Ms. Steiding said.
Another change from 2020 and 2021: Despite the recent rally, markets are still down for the year, preventing many investors from pouring in money in the same way they did last year. The average retail investor is sitting on a paper loss of 21% in their brokerage accounts this year, according to Vanda Research estimates as of Thursday. The S&P 500 is down 10% so far this year.
What's more, some of the recent rallies in speculative investments have already fizzled. American depositary receipts of AMTD Digital Inc., a little-known Asian fintech company that became a sensation among individual investors, finished Friday at roughly $192 after soaring to a closing peak of $1,679 less than two weeks earlier.
Still, analysts say, there are other factors luring investors back in. Stock splits from companies including Amazon.com Inc. and GameStop Corp. have made it cheaper for small investors to scoop up popular stocks. Lower prices across the market have encouraged many to try to buy the dip.
Those factors may have helped lay the groundwork for individuals' recent interest in speculative stocks, analysts say. And while some small traders have relished in the recent revival of meme-stock mania, others are instead focusing on what they believe will be longer-term wealth-building strategies.
Arian Adeli, an 18-year-old who is entering college in the Netherlands, dabbled in meme stocks last year, and he is still plowing money into growth stocks and cryptocurrencies. But lately, he has also been focused on buying dividend stocks whose prices have tumbled this year -- even if they aren't the trendy investment strategy among young traders.
"It's a very good opportunity to build a passive income stream," Mr. Adeli said.
To be sure, analysts say that much of the market's recent rally -- the S&P 500 has rebounded 17% since a June 16 bottom -- has been driven by professional investors. Some of them have rapidly unwound bearish wagers. Other money managers are reshuffling portfolios and adding new long positions to capitalize on the recent comeback in growth stocks.
Jason Goepfert, president of Sundial Capital Research, said a more-staid approach by some individual investors could bode well for the strength of the continuing stock-market rebound, noting that frenzied sentiment among individual investors has often signaled that a rally has gone too far.
"It's a good and positive thing to see people come back into the market and that's going to drive prices higher," Mr. Goepfert said. "We just don't want to see it get out of control."