Retail investors are sitting on big losses in their stock portfolios even as the market rallies in 2023

  • The average retail investor portfolio is down 27% year-to-date, per VandaTrack.
  • US stocks have been surprisingly resilient in 2023 despite looming recession fears and bank chaos.
  • “Growing recession risks could become a stronger headwind holding retail animal spirits at bay.”

Retail investors are down a lot in 2023 despite a surprising rally in stocks, with the average individual investor’s portfolio down about 27% year-to-date, according to Vanda Research. 

Retail investors have pared back their stock purchases as they remain hesitant to dive back into the market after a difficult 2022, when the Nasdaq Composite and the S&P 500 fell 31% and 19.4%, respectively.

In 2023, stocks have been surprisingly resilient despite a string of bank failures and more central bank tightening that’s sparked heightened talk of a recession. The Nasdaq has jumped 16% year-to-date, while the S&P 500 surged 7.8%. 

But individual investors appear to be missing out on these gains for the most part, according to Vanda. 

“As equities currently sit at similar bear-market-rally peaks, we suspect that retail investors will remain hesitant to raise their risk exposure as they got burned multiple times last year,” VandaTrack analysts wrote in a Thursday note. “In addition, growing recession risks could become a stronger headwind holding retail animal spirits at bay.”

Average retail investor allocations are very concentrated and largely titled towards tech stocks. Nearly 30% of retail portfolios are in Tesla and Apple, along with 10% in other mega-caps like Nvidia.

“This prolonged bear market – particularly in tech – along with recent growing fears of a recession are undoubtedly weighing on sentiment,” the note reads. “Additionally, in the short term, the fact that bank and financial stocks have not been able to recover significantly despite increased buying from individual investors is making some people question whether buying the dip was a good idea.”

A strong earnings season, however, could could boost risk appetite for the retail investor cohort. JPMorgan, BlackRock, Citigroup, and Wells Fargo all reported quarterly results on Friday, and earnings so far are looking upbeat. 

“[This depends] on which stocks report better-than-expected earnings and whether there will be clear signs around the potential timing of the impending recession,” analysts said. “Better figures or convincing forward guidance from bank or tech stocks will likely lead to a boost in retail purchases.”