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Amateurs bet Wall Street is wrong as buy-the-dip mentality rules

Wall Street’s argument for an impending selloff centres on the stock market being overheated.
Image: Michael Nagle, Bloomberg

Retail investors are betting that Wall Street’s pessimism on the U.S. stock market is misplaced.

Individuals have stuck to their dip-buying ways this week, plowing $4.84 billion into the market since Monday, data compiled by Vanda Research show. In contrast, institutional traders pulled $28.6 billion from U.S. equity funds in the week through Sept. 22 amid risks from tapering to China Evergrande Group’s debt crisis.

The day-trading crowd remained focused on exchange-traded funds like SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 as well as technology giants like Apple Inc., Facebook Inc., and Microsoft Corp. So-called meme stocks like AMC Entertainment Holdings Inc. and Lucid Group Inc. continued to get some love from retail traders using platforms like Fidelity.

In addition to buying the broader market’s declines, retail traders were quick to scoop up shares of DraftKings Inc. when the stock fell 7.4% on news surrounding its move to buy U.K. gambling company Entain Plc. and Facebook Inc. on Wednesday when the company warned that Apple Inc.’s new data-collection restrictions will hit digital ad sales.

“If I’m holding onto something for years, I would always go into FANGs. Those I think will always go up and they’re the future,” Barstool Sports Inc. founder Dave Portnoy said by telephone. “People sometimes act like I’m nuts when I say stocks only go up, but if you take a long-term view of it they truly do only go up.”

That optimism isn’t entirely misplaced. The S&P 500 Index has soared more than 1,000% over the past three decades, despite massive corrections after the dot-com bubble and the 2008 financial crisis. And it took less than six months for the S&P 500 to snap back from a 34% drop as the coronavirus shuttered the global economy.

Wall Street’s argument for an impending selloff centers on the stock market simply being overheated. Strategists from Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. have sounded the alarm in recent weeks surrounding the spreading delta variant and moves by central banks to end stimulus programs.

That fear could create an opportunity for investors focused on the longer-term, according to Callie Cox, senior investment strategist at Ally Invest.

“When the market is expecting the worst, it’s really hard to be disappointed,” she said by phone. “We have been stressing to our clients to look at the headlines, but remember that 99% of headlines don’t matter for the long-term investor.”

The economist John Maynard Keyes once said: “In the long run we are all dead.” The motto for retail traders is a slight riff on that; “In the long run stocks will always go higher.”

© 2021 Bloomberg L.P.

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