Retailers revive stock market, but support may be fleeting: analysts

Net inflows into US equities by retail investors continued to rise over the past week as the stock market kicked off the new year in a booming mood, but data analysts at Vanda Research said the pace of buying could easily ease if the bullish momentum stalls.

Marco Iachini, senior vice president of Fanta Research, attributed the January jump in retail buying of US equities to muted purchases of exchange-traded funds, indicating a decline in conviction in the long-term prospects for financial markets (see chart below).

Source: Fandatrack

“We believe that the market rally in January again stems from a bout of short covering by institutional investors and increased demand for shares from retail investors. However, despite the rebound in purchases, overall retail flow has not yet recovered to previous high levels, which means We remain on a long-term downward trajectory when it comes to retail share,” analysts led by Iachini wrote in a Thursday note.

The table below shows that ETFs are currently experiencing the largest divergence in flow since 2022. “The bottom three ETFs are the most popular vehicles of the past two years,” while the biggest gainers, such as Direxion Daily Semiconductor 3X Bear SOXS, are the top three, analysts said.
-6.50%And
They have a defensive flair to them.

Source: Fandatrack

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Iachini and his team also expect retail investors to maintain “high levels of participation” in individual stocks when the companies comprise more than half of the S&P 500 SPX,
+1.30%
The results of the market value report in the next two weeks. Includes Microsoft Corp. MSFT,
+3.18%And
Which will ascend to deliver its report for the second quarter of fiscal 2023 Tuesday, followed by Tesla Inc. TSLA from Elon Musk,
+3.86%
and International Business Machines Corporation (IBM) IBM,
+0.05%
On Wednesday, Intel Corp. INTC,
+1.46%
Thursday. Apple Inc. AAPL,
+1.22%
and Alphabet Inc., a subsidiary of Google, GOOGL,
+4.66%
It will report back the following week, according to FactSet.

“[Tesla] “Inventory continues to be a leading source of overall retail sentiment/health, in our view,” Iachini said. “Retail investors are buying shares of the EV-maker at one of the widest margins relative to their history and other securities.”

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With 11% of S&P 500 companies reporting actual results for the fourth quarter through Friday, 67% reported earnings per share (EPS) above estimates, while 64% of companies reported a positive revenue surprise, said John Potters, senior Officials. Earnings analyst at FactSet. EPS stands for net income divided by the number of shares outstanding, and can indicate how much money a company makes per share of stock.

Potters said in a note on Friday that the S&P 500’s mixed earnings decline for the fourth quarter is 4.6%. If this is the actual decline for the quarter, it would be the first time the index has recorded an annual decline in earnings since the third quarter of 2020 posted a 5.7% decline.

US stocks traded slightly higher on Friday, helped by Netflix Inc. nflx,
+7.29%
and Alphabet, which jumped 7% and 4.7%, respectively, on corporate news. nasdaq composite,
+2.05%
It rose 2%, but is on track to post a weekly loss of 0.2%. Dow Jones Industrial Average DJIA,
+0.52%
up 163 points, or 0.5%, to 33,207 points. It fell 3.2% for the week and could post its worst weekly performance since September 2022. The S&P 500 rose 1.3% on Friday, on track to post a weekly loss of 1.3%, according to Dow Jones market data.

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