Retail traders may have finally given up on buying the dip

Crypto and stock markets got a brief boost Monday as the president touted a plan to use US taxpayer money to buy a broader range of cryptocurrencies for a theoretical “strategic reserve.”

But they couldn’t hold early gains, thanks in part to President Trump’s threats of tariffs and a big slump in market behemoth Nvidia, which pushed both the S&P 500 and the Nasdaq into negative territory.

It makes you wonder whether the Bank of America analysts who predicted the popping of the “bro bubble” might be on to something.

During the stock market carnage that began February 19 and rolled through most of last week, JPMorgan analysts who keep a close eye on retail trading activity noticed something. In a Wednesday note last week, they spotlighted strong selling of top retail favorites like Palantir, alongside strong buying of tried-and-true diversified ETFs.

Analysts used z-scores to indicate the size, in terms of standard deviation, of the waves of buying and selling:

“Over the week, almost entire inflows into ETFs (+$3.4B) were offset by single stocks (-$3.2B). S&P and Nasdaq ETFs continued to dominate the inflows, collectively accounting for $1.5B (+2z). On the other hand, bitcoin-related ETFs led the outflows (IBIT -1.6z, GBTC -1.2z) as cryptocurrenecy almost erased the entire ‘Trump bump’.

Among single stocks, all sectors were net sold, led by tech (-$1B). PLTR accounted for nearly a half of the outflow (-$480Mn) within tech, marking the largest amount on record since 2015 (Figure 2). Super Micro Computer also contributed meaning outflows (-2.5z).”

It’s worth noting that the last time Palantir was getting badly beat up in the markets, back in January, JPM analysts reported that retail traders flocked to buy the dip in the data analytics and software company, as well other favorites. That suggested widespread retail confidence in a market recovery. (To be clear, Palantir is bucking the broader trend today, posting a solid gain.)

But during the latest downturn, for whatever reason — policy uncertainty, weakening economic data, tariffs, or broad worries about the sustainability of the AI trade — the rampaging animal spirits that emerged after the president’s election last November have evaporated.

Of course, that doesn’t mean the market is doomed. It could just be that stocks, which were reaching fairly high levels of valuation at more than 22x forward earnings, were in desperate need of a sell-off, before it consolidates and moves higher.

It’ll be interesting to keep watching retail traders to see what their confidence level is that the postelection rally can be revived.