US stock market's most steadfast buyers lose confidence! Retail investors' net purchases plunge to the lowest level since the epidemic, rejecting "blindly buying the market" in favor of "selecting stocks based on stories"

Retail investors - one of the most steadfast supporters of US stocks in this century - are showing signs of weakening confidence. According to the latest data from Vanda Research, the difference between funds flowing into US stocks and funds flowing out in the past four weeks has narrowed to $13 billion, the lowest level since the outbreak of the COVID-19 pandemic. Despite strong trading activity in the market, retail investors are selling at almost the same pace as buying, leading to net positions returning to their lowest level since 2020. This development indicates that investors are becoming more selective, preferring to chase specific market themes rather than having broad confidence in benchmark indices. With market diversification nearing historic highs and intense rotation between winners and losers, 2026 is becoming a true "stock-picker's year". "Big Seven" abandoned by retail investors: trading ratio plummeted to 6% The once popular "Magnificent Seven" (Mag 7) among retail investors are now experiencing a massive "voting with their feet." According to Citigroup data, in the five trading days up to June 26th, retail trading accounted for only 6% of the total trading volume of Mag 7, hitting the lowest level in four years. This proportion is a significant drop compared to the peak levels exceeding 20% in 2023-2024, creating a stark contrast. Throughout most of 2025, this proportion remained above 15%. Citigroup strategist Stuart Kaiser pointed out that last week, retail interest in Mag 7 was lower than about 85% of trading days since 2022, showing a systematic decline in enthusiasm rather than just a short-term fluctuation. Within the Mag 7, Nvidia has suffered the most noticeable impact from retail withdrawal - the proportion of retail trading in the stock's total trading volume dropped from 9.6% in the previous week to 8.1%. Tesla, on the other hand, had relatively high retail interest among the seven component stocks, accounting for 10% of the total trading volume, but this number is also approaching historic lows since 2022. At the same time, the performance of Mag 7 stocks this year has been disappointing. Bloomberg tracked the index of this group and found it accumulated a 3.1% decline, while the S&P 500 index rose by 8.7% during the same period. Vanda Research: Retail investors "buy stories, not the market" Vanda Research's global macro strategist Viraj Patel pointed out that the sharp drop in net purchases by retail investors does not mean they have stopped trading. "Some select retail investors have joined a very selective group of institutional investors - in their eyes, 2026 is really the year of stock pickers," Patel said. The behavior patterns of retail investors in 2026 are different from the post-pandemic era. They are no longer broadly buying AI stocks and "Big Seven" but rapidly rotating between different themes: betting on energy stocks and energy ETFs at the beginning of the year; shifting to silver ETFs and non-US markets in February; chasing the semiconductor sector in April, focusing on chip stocks like Micron and Marvell; swiftly moving to cryptocurrency ETFs in June. The listing of SpaceX has further pushed this trend to its peak. Vanda Research data shows that in the first three trading days after SpaceX's listing, retail investors net purchased $3.698 billion, while Nvidia's net purchase in the same period was only $882 million. Retail interest in SpaceX almost overshadowed all other stocks in the market. Vanda Research pointed out that retail speculative capital is being shared among cryptocurrency, prediction markets, sports betting, and various private equity and alternative assets. The research bluntly stated, "Retail investors are not turning away from speculation, but the process of finding the next 'ten-bagger' is spreading to more domains, with stocks being just one of them." Sentiment reversal: bears overwhelm bulls The cautious attitude of retail investors is fully confirmed in sentiment data. According to the latest survey by the American Association of Individual Investors (AAII), as of the week ending on July 8th, 37.2% of respondents have a bearish outlook on the stock market for the next six months, while 36.3% are bullish. The historical average data from AAII shows that the bullish percentage is 37.5% and the bearish percentage is 31.0%. More importantly, the trend's continuity - since mid-February, in all weeks except four, the number of bears has exceeded the number of bulls. The bullish sentiment has been below the historical average for seven consecutive weeks. Just a week ago (July 1st), the bearish percentage reached as high as 42.3%, while the bullish was only 31.4%. This sustained bearish sentiment seems particularly anomalous as the US stock market approaches historical highs. As one market observer put it, "History shows that the strongest bull markets are often driven by doubt rather than enthusiasm" - but 19 weeks of bearish dominance have exceeded the normal "wall of worry". Where did the funds go? "Feasting" in cryptocurrency, prediction markets, and sports betting Another key factor in the change of retail investor behavior is the complete shift in the competitive landscape of speculative capital. Vanda Research pointed out that retail speculative capital is now being divided among cryptocurrency trading, prediction markets, sports betting, and various private equity and alternative assets. The same dollar of "venture money" is not solely seeking the next "ten-bagger" in the traditional stock market but scattered across multiple platforms. ETFs have become an important alternative. According to Citigroup data, retail funds are shifting from individual stocks to ETFs. While retail trading in Mag 7 has dropped to 6%, the inflow into related ETFs is increasing. Speculative capital is diverted to cryptocurrency and prediction markets. Vanda Research pointed out that retail speculative funds now face more competition - cryptocurrency trading, prediction markets, and sports betting are all vying for the same dollar of "venture money". "It's not that retail investors are no longer speculating, but the process of finding the next 'ten-bagger' is branching out into more domains, with stocks being just one of them," Vanda Research wrote in the report. This diversification of funds implies that the traditional analytical framework that relied on tracking retail buying to predict risks and trends in the market may also need to be re-examined. Market impact: Light positions do not necessarily signal a bearish market Vanda Research emphasizes that the decline in net retail positions does not constitute a bearish signal for the stock market. The analysis indicates that what is truly likely to cause a sharp correction is "crowded positions," not "light positions". When retail investors have not significantly entered the market, there is less pressure to force selling; and if retail investors return in the future, they could even become additional buying power to boost the index. Etoro US investment analyst Bret Kenwell believes that the potential slowdown in retail demand reflects concerns about the overall market and overvaluations in the tech sector. "Chip stocks are consolidating after a sharp rise in the second quarter, and retail investors may be reluctant to inject new funds into sectors they believe have already expanded excessively in the short term." Citadel's statistics also show that the willingness of retail investors to "buy the dip" remains present - whenever the S&P 500 index falls this year, retail buying tends to approach 3.5 times the daily average level. JPMorgan data shows that retail investors net bought $8.9 billion in stocks this week, higher than the average level of $6.8 billion over the past 12 months. However, Patel of Vanda pointed out, "There hasn't been a clear trend in the AI and tech sector, not even the Big Seven are trading as a collective anymore." The era of stock pickers has arrived The change in retail investor behavior reflects a profound transformation occurring in the US stock market. With indices nearing historical highs, retail investors are shifting from "indiscriminate buying of the market" to "chasing themes and narratives". For professional investors, the key question is no longer "are retail investors buying" but rather "which narrative are retail investors currently chasing". In an environment of increasing differentiation within the AI sector and rapid capital rotation between different themes, the winners in the second half of 2026 will be those investors who can accurately capture the shift in retail narratives. As Vanda Research stated, light positions are not a risk signal, crowded positions are. And as retail funds are divided among cryptocurrency, prediction markets, sports betting, and other battlegrounds, the traditional framework of predicting market trends by tracking retail behavior may need to be reevaluated.