(Bloomberg) — Individual investors are buying stocks like never before and leaving the broader market in the dust. But at the same time, a surge in trading volume is raising fears that retail’s favorite positions are getting dangerously crowded.
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Citigroup Inc.’s basket of 46 stocks most favored by non-professional investors, which includes companies like SoFi Technologies Inc. and Riot Platforms Inc., is up 30% since the start of September, beating the S&P 500 Index’s 4.3% gain. Meanwhile, retail trading volume has increased to an all-time-high, the bank’s equity trading desk wrote in a research note Tuesday.
“It’s been our contention for quite some time that the stock market gains have been largely propelled by a combination of FOMO and MOMO,” said Steve Sosnick, chief strategist at Interactive Brokers. “At this point, every dip is perceived as a buying opportunity, and uptrends are something to be chased.”
Citigroup’s figures on trading activity defied weak October seasonality, with volume rising to the highest since the bank started tracking the data in 2018.
Data from other banks shows a big jump in volume as well. From Oct. 2 through the close of trading on Oct. 8, retail investors accelerated their weekly purchases of stocks to $7 billion, an increase from the of $5.3 billion per week over the past two months, JPMorgan equity and quant strategist Arun Jain wrote in a note to clients on Wednesday.
The buying spree coincided with renewed optimism around artificial intelligence stocks, fueled by a series of corporate deals, bets on interest-rate cuts and expectations for resilient earnings. Indeed, AI-linked names remain the epicenter of retail enthusiasm. Dell Technologies Inc. drew its largest inflow in nearly five months, while members of the Magnificent Seven such as Tesla Inc., Nvidia Corp. and Meta Platforms Inc., but excluding Apple Inc., saw sizable buying, Jain wrote.
Risk-on sentiment is present in the options market as well. Over the last seven trading sessions, retail gamma supply — a gauge of how much investors are selling options and collecting premiums on short-dated calls and puts — jumped to an all-time high of $93 billion, according to JPMorgan Chase & Co. The surge was led by growth-oriented names, with technology and communications stocks seeing the steepest pickup.
