Schwab: Retail investors bought heavily in February
While the S&P 500 index (SPX) fell 0.87% in February, retail investors weren't following the herd and bought heavily last month, according to the private clients tracked by the Schwab Trading Activity Index (STAX).
The STAX index gained 14.73% in February, far outpacing the S&P 500.
It was the largest monthly percentage gain for the STAX since late 2020, finishing February at 57.32. It was the highest reading since it reached 59.53 in February 2022.
STAX has now outgained the SPX in six of the last seven months.
The index rose in every week of February except one, according to Schwab. Its best week came in the first week of the month when it gained 6.87%, following a 4.31% jump in the final week of January.
Like they did in January, retail investors were once again focused on buying the dip on tech stocks. A selloff in the tech sector is what largely drove the S&P 500 down, so it's not surprising that STAX outgained it since Schwab's private clients became buyers during and after the earnings reports that sent the tech stocks down.
Among the shares that retail investors were buying up last month, include Amazon (AMZN), Microsoft (MSFT) and Netflix (NFLX).
Microsoft and Amazon were interesting names for retail investors to buy, especially given the wide selloff that was happening with AI and software-related stocks in February.
"Clients showed with their actions they believe the AI-driven panic is likely overdone," Joe Mazzola, head trading and derivatives strategist at Schwab, said in a statement. "This was especially true of our trader clients, who looked at this as an opportune time to buy some stocks that were recently punished amidst concerns over potential AI disruption.”
There has in fact been a pushback on Wall Street over the "AI-driven panic" that led to a massive route for software stocks in February.
JPMorgan global investment strategist Kriti Gupta said in a report last month that the market was using “broken logic” because it was “selling indiscriminately,” including the “stocks that should benefit from the disruption – like the hyperscalers that invested early in AI technology, chipmakers fulfilling demand from the infrastructure build and even the materials needed for the process.”
Mazzola notes that Schwab's clients ignored the 38% drop that Palantir (PLTR) shares have suffered since its early November highs and were instead buyers of the stock.
The sectors with the highest net buying among Schwab's retail clients included information technology, financials and consumer discretionary. The highest net selling came from communications services, consumer staples and energy.
Despite retail investors selling them, both consumer staples and energy were strong performers in February, Schwab notes.
For the fourth straight month, members of Generation X, who were born between 1965 and 1980, were the most aggressive investors in February.
Amazon topped the list of stocks with the largest inflows, followed by Microsoft, Nvidia (NVDA), Palantir and Netflix.
Meta Platforms (META) had the most net outflows in February, followed by Apple (AAPL), Verizon (VZ), Costco (COST) and AT&T (T).