The new generation of U.S. retail investors is "different": they have no memory of bear markets, only the sweetness of "buying the dip" and the envy of "getting rich overnight."

The U.S. stock market is witnessing a generation of "different" retail investors. They bravely buy the dip during market turbulence and actively purchase during every pullback, driving the market to new highs repeatedly. Analysts say that behind this phenomenon is a fundamental change in the composition of investors: the new generation of investors lacks memories of bear markets and has only experienced the sweetness of a long bull market.

Earlier this year, when the market fell due to tariff disputes, retail investors entered the market in large numbers to buy the dip, pushing the stock market back to historical highs and even reigniting MEME stock trading. According to data from JP Morgan, after Trump announced the so-called "reciprocal tariffs" in April, the S&P 500 index fell about 5% over two consecutive trading days, and retail buying set a record. When the market plummeted in early August due to disappointing employment data, retail investors quickly entered the market again, pushing the S&P 500 index to continue rising.

Analysts point out that this resilience of "buying the dip" may last longer than many market veterans realize. The current new generation of investors mostly started their investment careers in an ultra-low interest rate environment, primarily experiencing a continuously rising bull market, and the success of early investments makes them more willing to hold on during market turbulence.

According to data from Ed Clissold, Chief U.S. Strategist at Ned Davis Research, this structural change, combined with the trend of trading as entertainment, is reshaping the composition of market participants.

Generational Shift Reshaping Investment Psychology

This group of young investors has grown up in a markedly different market environment. They lack memories of catastrophic events such as the bursting of the internet bubble or the financial crisis; instead, they tasted success early in their investment careers, encouraging them to take on greater risks and hold on during market turbulence.

Data shows the power of this psychological shift. In 2022, the Federal Reserve's interest rate hikes tested this "buying the dip" tendency, with the S&P 500 index falling 19%, marking the largest decline since 2008.

However, many investors chose to hold firm, with U.S. stock mutual funds and ETFs recording a net inflow of $27 billion that year. They were quickly rewarded, as the S&P 500 index experienced its best two-year performance in 25 years.

In stark contrast, older investors who experienced darker times behaved very differently. During the 2008 financial crisis, investors withdrew nearly $50 billion from U.S. stock funds, and even after the market bottomed out in March 2009, the outflows continued for four years.

This also meant that those who sold missed the beginning of the longest bull market in history for the S&P 500 index.

Trading as Entertainment Fuels the Trend

Trading and betting have evolved into a form of entertainment for many Americans. Group chats among friends are filled with comments about sports, hot stocks, and meme stocks, and everyone seems to know someone who got rich overnight in cryptocurrency.

Due to rapid technological advancements, trading various assets has become easier and cheaper. **Some brokerages seek to "gamify" investing, creating a "casino" appearance and feel in their apps while offering high-risk trading tools such as options and prediction markets **

These changes have maintained the participation of retail investors, who occupy an important position in the market.

According to JP Morgan data, retail traders have recently accounted for around 20% of total options activity, even higher than the peak during the meme stock frenzy in 2021.

According to Jefferies data, they account for about one-fifth of stock market trading volume, slightly below the peak in 2021, but approximately double the figure from 2010.

The Stock Market as a Barometer of Wealth for Americans

More importantly, those who have persisted in investing in the stock market have witnessed the expansion of their portfolios. The S&P 500 index has become a real-time barometer of wealth growth for many Americans, outperforming other assets such as real estate or bonds.

According to Fidelity data, as of the end of 2024, the brokerage has a record 537,000 401(k) millionaire accounts.

The correlation between stocks and the financial condition of Americans has reached unprecedented levels. According to data from Ned Davis Research's Chief U.S. Strategist Ed Clissold, in the first quarter, stocks accounted for 36% of household financial assets, the highest level recorded since the 1950s.

Analysis points out that while every bull market will eventually end, and the higher the valuation, the more severe the potential decline, if there has indeed been a substantial change in investor psychology, there may be an underappreciated buffer mechanism to limit losses.

The function of today's new generation of bullish investors may be similar to that of past bears, stepping in to buy when others are selling. Veteran market observer and former Chief Investment Strategist at Leuthold Group Jim Paulsen stated:

"This makes people bolder because they have been successful, and you start to feel like 'this is trading, I can handle a pullback.'"

A recent survey conducted by Charles Schwab found that about 80% of respondents indicated they plan to buy if the market experiences volatility in the coming months.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk