Moody's downgrade triggers a decline in US stocks as retail investors set a record for bargain hunting
Moody's downgrade of the U.S. credit rating led to a 1% drop in the S&P 500 index. Nevertheless, retail traders recorded a historic buying spree of U.S. stocks at lower prices, with a net purchase amount reaching $4.1 billion, and retail trading volume accounting for 36%. Analysts believe that retail investors have learned their lessons and are actively participating in the market rebound. Wall Street strategists recommend continuing to buy stocks, viewing the decline in risk assets as a good opportunity to expand investment
According to Zhitong Finance APP, last week, Moody's downgraded the U.S. credit rating, causing the S&P 500 index to drop by 1%. On Monday, retail traders began to buy U.S. stocks in record amounts. According to data compiled by JP Morgan's quantitative and derivatives strategist Emma Wu, as of 12:30 PM Eastern Time, individual investors net purchased $4.1 billion in U.S. stocks, the highest level at that time of day, and for the first time on Monday, they broke the $4 billion threshold.
The S&P 500 index fell nearly 1.1% in the minutes before Monday's opening, but by the afternoon, the index had rebounded to positive territory, remaining flat at 2:50 PM Eastern Time. Retail investors accounted for 36% of the trading volume, surpassing the historical high reached at the end of April.
Frank Monkam, head of macro trading at Buffalo Bayou Commodities, stated, "Retail investors have learned their lesson—previously, they were left behind in market recoveries supported by policy bearish options. Retail investors are almost firmly committed to never making that mistake again."
This buying trend continues the pattern of small investors heavily purchasing U.S. stocks for several weeks. As the S&P 500 index approaches the worst bear market period triggered by tariffs in April, small investors are buying stocks at a record pace. Now, with the index nearing a 20% increase and a bull market, they are enjoying the rebound. Meanwhile, so-called "smart money" has been on the sidelines.
Most Wall Street strategists largely ignored Moody's downgrade on Monday, advising clients to continue buying stocks. Morgan Stanley strategist Michael Wilson stated that investors should buy during the drop in U.S. stocks triggered by the downgrade last Friday, as easing U.S.-China trade tensions reduced the likelihood of an economic recession. Max Kettner, chief multi-asset strategist at HSBC Holdings, said his team believes that any decline in risk assets is an opportunity to expand exposure.
Vincent Lorusso, CEO and portfolio manager at Clough Capital Partners, stated, "I think retail investors are doing the intuitively right thing by allocating funds to where they can achieve the most attractive risk-adjusted returns. Retail investors are savvy enough to see this as an opportunity." He noted that buying stocks now makes sense against the backdrop of declining inflation and strong corporate and consumer balance sheets.
According to JP Morgan, retail investors bought $2.5 billion in individual stocks on Monday and $1.5 billion in exchange-traded funds (ETFs). Small investors heavily purchased the popular Tesla (TSLA.US) and Palantir (PLTR.US), which received inflows of $675 million and $439 million, respectively. They also injected funds into Bitcoin ETFs while remaining net sellers of Nvidia (NVDA.US)
