During the first quarter of 2025, retail investors flooded an unprecedented $67 billion into US stocks and ETFs. Together, these three actions drove the majority of the stock market’s recovery. This investment, although slightly lower than the $71 billion recorded in the previous quarter, underscores a significant trend: retail investors are increasingly becoming an influential force in the financial markets. The result is that their activity smooths prices even through periods of great volatility. Beyond that, it creates and reinforces market dynamics since they energetically trade in and out of equities.
Even with a difficult market at the beginning of this year, retail investors continued to purchase. True, the sell-off continued through mid-April, but their momentum was unrelenting. This resilience is an indication of a pronounced shift in investor sentiment. Currently, fears of lost purchasing opportunities outweigh anxiety over entering a bear market. In fact, retail buyers are the ones clamoring for growth stocks. They especially love their “Magnificent 7,” the wonderfully opaque term for the first group of leading tech companies that includes heavyweights like Nvidia and AMD. These stocks have outperformed the overall S&P 500 index, signaling a clear inclination towards high-growth potential rather than traditional value investments.
The increasing influence of retail investors is reflected in the numbers. In Q4 2020, retail trading accounted for a record 19.5% of the total equity market volume for US stocks. This was a significant jump from 18.5% in Q3 2024 and 17% only one year earlier. Retail participation has gone bananas. This trend has almost perfectly mirrored the huge run-up in large tech stocks this year, attracting the attention of retail investors. With these trends expected to continue, analysts are forecasting the growing influence of retail investors. They can deeply influence the results of that market.
Retail investors have been unabashed buyers of US equities. Importantly, at the same time they’ve moved dollars away from equities and toward bonds and other asset classes. From the Bank of America monthly ETF flows summary, passive investors, and by extension retail traders, are diversifying their portfolios by favoring bonds over equities. This diversification strategy could be seen as a more cautious move, as investors continue to learn and adapt from unpredictable market volatility.
Additionally, a widespread shift in the geography of retail investment priorities has occurred. Retail traders are increasingly preferring US markets over European counterparts. This change would set the stage for increasing peaks in US equities. Flows into European markets peaked in November of 2024, but have shrunk considerably since. This change as a whole indicates capital could be moving back into the US. This shift is particularly notable as it indicates that retail investors are extremely tuned-in to disconnects created by market forces. In addition, they make highly consequential strategic asset allocation decisions.
What this surge in retail participation means goes farther than just the numbers. Another strong, growing force on the financial landscape are retail investors. Yet, they are doing both—stabilizing Herf’s “crazy market” during the downturn and accelerating the recovery momentum in the process. They want to invest, even in recessions. This disposition is indicative of increasing faith in the long-term trajectory of both the US economy and its most innovative and powerful corporations.
As the second quarter of 2025 approaches, the outlook for US stocks will likely depend on continued retail engagement and broader economic signals. Analysts will be closely monitoring to see if these trends continue or shift with changing market dynamics. Retail investor sentiment and macroeconomic conditions are always changing. Their interaction will determine whether today’s recovery can stay healthy, or whether it will find itself facing headwinds in the months ahead.