Retail Investors Snap Up Shares Amid Sell-Off, Hunting $7 Billion to Buy the Dip

Even as Donald Trump's escalating trade war drags the U.S. stock market closer to a correction, retail investors remain undeterred, continuing to pour billions into equities.

In the week leading up to March 12, individual investors funneled $7.3 billion into stocks, despite a sharp downturn in major indexes. They aggressively increased their holdings in long-time favorites like Tesla Inc. and placed substantial bets on leveraged funds tracking the Nasdaq 100 and Cathie Wood's ARK Innovation ETF (ARKK), according to Emma Wu, a global quantitative and derivatives strategist at JPMorgan Chase.

Their buying spree came amid a market slump, with the S&P 500 losing over 4% this week. Rather than retreating, these investors doubled down, demonstrating a confidence built over the years as U.S. equities have consistently rebounded from pullbacks.

However, such resilience may not be an encouraging signal.

Historically, retail investors tend to be the last to reduce exposure to equities, and some market strategists argue that a true bottom isn't reached until they finally capitulate. So far, there's little sign of that happening.

As of February, retail investors' stock holdings exceeded their cash reserves by 50%, more than twice the historical average seen in non-bear-market corrections since 1988, according to veteran strategist Jim Paulsen.

JPMorgan's data shows that Nvidia Corp. and Tesla were among the biggest beneficiaries of the recent buying spree. Individual investors have poured over $4 billion into Tesla since last Tuesday, despite the stock plunging nearly 20% in March alone.

Leveraged ETFs have also seen a surge in inflows. ProShares UltraPro QQQ (TQQQ) and Direxion Daily Semiconductors (SOXL) each attracted over $1 billion last week, with buying activity persisting over multiple sessions. ARK Innovation ETF saw nearly $300 million in purchases on Monday, while its leveraged counterpart, Tradr 2X Long Innovation ETF (TARK), recorded its largest weekly inflow since 2022.

In total, triple-leveraged ETFs tracking high-growth sectors and beaten-down indexes saw $2.7 billion in new bets last week, according to Bloomberg Intelligence's Eric Balchunas and Gina Martin Adams.

Many investors have been conditioned to buy the dip, a strategy that has paid off over the past 15 years. It will likely take a much bigger shock to shake their conviction, they noted.