Retail investors are getting smoked because they keep buying the dip in Tesla
This Tesla buying streak is the biggest in at least a decade, as investors pour into the Magnificent 7.
It turns out continuing to pile into the S&P 500’s biggest loser of the year is not a winning strategy.
Retail traders have been accumulating Tesla for 12 straight days to the tune of $7.3 billion in net purchases, per JPMorgan, “the highest magnitude among all past ‘buying streaks’ in over a decade.”
Shares of the Elon Musk-led auto company are down 17.1% over this period, which has included selling by Tesla insiders, analysts cutting delivery targets as early-year sales figures disappoint, progress by rivals on autonomous driving as well as EV charging, and deteriorating public perception of the brand.
According to JPM quantitative strategist Emma Wu, nearly 75% of the $8.3 billion that retail traders have put to work in single stocks over the past week has gone to the members of the Magnificent 7, led by Tesla and Nvidia. This group has generally faced heavy selling pressure amid a breakdown in momentum stocks, particularly those levered to AI.
“We estimate retail investors’ performance is down by 7% year-to-date (vs. -3.3% loss in S&P),” she wrote. “Most of the drawdown came from March as they increased their holdings in Tech.”
Heavy retail buying when stocks go down has been the rule, not the exception, she observed:
“They broke the $2-billion threshold for the past four days in a row. It’s worth noting that this level that is more easily reached in a ‘down’ year than in an ‘up’ year: it was rarely seen in 2023/24 (4 times in total), when S&P produced double-digit returns, but occurred 10 times in 2022, concentrated in Feb during the Russia-Ukraine war, and has already happened 16 times this year. The correlation between S&P returns and subsequent retail net imbalance was up to 60% in 2022 and this year, vs. ~20% in 2023/24. This suggests their ‘buy-the-dip’ mentality from another perspective.”
Not only is Tesla the worst-performing S&P 500 constituent year-to-date (down 41.6%), but it’s also posted the largest drop since the S&P 500’s February 19 record close (down 34.6%).
