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RETAIL TRADERS SMELL OPPORTUNITY AND HIT BUY AGAIN

After hitting a four-year low earlier this year, retail participation in U.S. equities is poised for a comeback, J.P. Morgan said, at a time when markets are brimming with hopes for a Mideast peace deal and optimism about AI and space stocks.

Retail investors played a significant role in U.S. markets during the pandemic, with the brokerage saying it hit a historic high of 31% in December 2020.

The pandemic was also a period when meme stocks such as GameStop GME.N and AMC Entertainment AMC.N saw a surge in volatility due to retail participation, and propelled retail-focused brokerages such as Robinhood HOOD.O that went public in 2021.

However, since then retail participation has steadily declined, constrained by higher interest rates, inflation pressures and, last year, by economic uncertainty over U.S. tariffs.

Still, JPM said that smaller participants buying call options, which reflect a bullish bet on markets, surged in April and May, suggesting a revival from the slump.

This is against the backdrop of a ceasefire announced between Iran and the U.S., global optimism around AI and a surge in interest in space stocks following the highly awaited news that SpaceX was prepping to go public next month. Elon Musk is also targeting his retail fan base for a successful debut.

Micron Technology MU.O, Tesla TSLA.O and Nvidia NVDA.O are the top three stocks that have witnessed a surge in call option activity, as of Wednesday's close, with turnover in Micron near all-time highs at $119.69 million, according to VandaTrack data.

Micron MU.O joined the $1 trillion club earlier this week, following South Korea's SK Hynix 000660.KS, while Samsung Electronics 005930.KS clinched the milestone in May.

It is not just domestic investors, JPM says. Foreign investors also piled into U.S. bonds and equity exchange-traded funds (ETFs) in April and May, following a brief pause in March as the conflict escalated.

The conflict is likely to have also shifted the dynamics of foreign investments in the U.S., the brokerage said.

South Korea and Taiwan have witnessed a surge in current account surpluses due to their respective tech booms, which is likely to be recycled into the U.S. and make up for the slowdown in investments from the Gulf region.

(Johann M Cherian)

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