After a raucous start to the year, Wall Street expected non-professional traders to pump chunks of their $1,400 stimulus checks into the stock market, supporting popular names like Tesla (TSLA) and Apple (AAPL). So far, that doesn’t appear to be happening. Breaking it down: Retail investors who helped power GameStop mania haven’t been rushing to buy their favorite tech names, meme stocks or short-dated call options with the ferocity they exhibited in late January and early February. Daily net purchases of US equities by retail traders dipped in late March, just as stimulus checks were hitting bank accounts, data from Vanda Research’s VandaTrack shows.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, said this is a major reason that the VIX, a measure of US stock market volatility, recently fell to its lowest level since February 2020. “The drop in the VIX is in part due to less retail speculation and call buying,” Boockvar told me. What’s caused these traders to take their foot off the pedal? As inflation fears ricocheted across markets, stocks that had exhibited lots of momentum, benefitting the retail crowd, started to reverse course. Apple dropped 8% in February, while Tesla shed more than 15% in February and March.

That spooked small investors, who are very sensitive to these changes, Vanda Research cofounder Eric Liu said. When the value of retail portfolios falls back, that often leads to changes in buying habits. “There’s a clear relationship between how retail performs today and their proclivity to invest tomorrow,” Liu said. He doesn’t expect retail to stay on the sidelines indefinitely, though there’s a sense now that investors are looking for their next obsession. Recently, there’s been significant investment in broad exchange-traded funds, which indicates there’s not a lot of conviction about the Next Big Thing, Liu added. If Big Tech starts to consistently rally again, the calculus could change, and February’s fears may be cast aside. FAANG stocks — Facebook (FB), Apple, Amazon, Netflix (NFLX) and Google — plus Microsoft make up about 28% of the typical retail portfolio, according to Vanda Research.

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