U.S. retail stock buying hit record level on Friday -Vanda Research

© Reuters. FILE PHOTO: The New York Stock Exchange is pictured in the Manhattan borough of New York City, New York, U.S., April 16, 2021. REUTERS/Carlo Allegri/File Photo

By John McCrank

NEW YORK (Reuters) - Retail investors bought more stocks on Friday than at any other time on record, taking advantage of a sharp drop in share prices, analysts at Vanda (NASDAQ:VNDA) Research said on Wednesday.

Net inflows from individual investors into equities were $2.05 billion on Friday, Vanda analyst Giacomo Pierantoni and senior strategist Ben Onatibia said in a note to clients.

The move was spurred by the recent recovery of stocks favored by retail traders and a rotation out of cryptocurrencies that led millennials to reengage with equity markets, they said.

The S&P 500 fell 1.31% on Friday and the Nasdaq Composite dropped 0.92%, after a U.S. Federal Reserve official suggested the U.S. central bank might raise interest rates sooner than previously expected.

While retail investors bought the dip, especially exchange-traded funds like the SPDR S&P 500 Trust (SI:SPY) and Invesco QQQ, as well as financials, materials and energy stocks, institutional investors were sellers, the Vanda analysts said.

"Hedge funds unloaded their massive positions in value stocks after the FOMC and nobody else but retail wanted in," they said, referring to the Federal Open Market Committee.

Individual investors ramped up their stock market activity starting in November 2019, when most large brokerages dropped their trading commissions. Retail activity accelerated during the COVID-19 pandemic, peaking in the first quarter of 2021.

Retail engagement is likely to remain well above pre-pandemic levels going forward, based on the results of a survey of around 500 individual investors, Jefferies (NYSE:JEF) said on Wednesday.

"Ease of access, improved technology, product innovation (i.e. fractional shares) and low costs are some of the factors that give us confidence around this sustainability," Jefferies analysts said in a client note.

Around 70% of those surveyed by Jefferies said that in a normalized economy they would either not alter or would increase their trading activity.