Retail traders are now critical force in U.S. equity markets: Goldman Sachs

[A man trading with cryptocurrency]
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Goldman Sachs analysts say retail investors have become a decisive factor in U.S. equity trading, with their activity strongly linked to market direction and increasingly concentrated in technology and consumer discretionary stocks.

On peak days this year, retail flows have accounted for more than 28% of S&P 500 (SP500 [https://seekingalpha.com/symbol/SP500]) trading, according to Goldman’s August 15 tactical fund flows report by analysts Gail Hafif, Brian Garrett and Lee Coppersmith. The firm noted that retail imbalances, whether net buying or selling, closely track index price action, reinforcing their role in driving market swings

SPECULATION ON THE RISE

Goldman’s Speculative Trading Indicator hit 114 in August, underscoring an upswing in risk-taking among individual investors. This comes even as institutional sentiment remains only modestly “risk-on,” with positioning less stretched than late last year

Retail traders have piled into IT and consumer discretionary names, while showing little interest in utilities and real estate. Nearly one-fifth of trading in the tech-focused XLK (NYSEARCA:XLK [https://seekingalpha.com/symbol/XLK]) exchange-traded fund is now retail-driven. At the single-stock level, buy imbalances reached as high as $74 million in favored names, while sell imbalances in out-of-favor stocks approached $55 million

DIP-BUYING AND SEASONALITY

The report highlights retail’s tendency to buy market pullbacks, often stepping in after drawdowns of 1% to 2%. Seasonal patterns also influence flows, with cyclical trends in both single stocks and ETFs visible in Goldman’s tracking data

LEVERAGE AND ETF OUTFLOWS

Retail interest in leveraged ETFs remains high, particularly bullish bets on the Nasdaq 100 (NDX [https://seekingalpha.com/symbol/NDX]). At the same time, mutual funds and ETFs saw net outflows in August, leaving retail activity increasingly important as a counterweight in the market

WHY IT MATTERS

Goldman flagged that commodity trading advisors ((CTAs)) have built stretched equity positions, with U.S. equity exposure at $55 billion, its highest in four years. With institutional and systematic support limited, the bank stressed that retail investors remain central to sustaining momentum in equities.

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