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One Important Change in Retail Investor Behavior Bodes Well for the Market

By:JJ Kinahan

The market intelligence team at tastytrade has identified a discernable shift among retail investors

  • Impressive market gains, with S&P 500 up 19% and Nasdaq up 38%, highlight market resilience.
  • Retail investors shift their focus to individual underlyings, displaying optimism for potential market strength.
  • The positive earnings season surprises—80% of companies surpass expectations—reflect resilience and optimism.

As the end of July approaches, investors find themselves amid a whirlwind of market activity, with unexpected gains and intriguing shifts in investor behavior. The year-to-date performance of major indices has exceeded expectations, with the S&P 500 surging by 19% and the Nasdaq Composite soaring an astonishing 38%. In this blog post, we will delve into the recent market developments, focusing on the changing patterns in retail investors' interactions, impressive earnings reports and the importance of monitoring oil prices amid a generally complacent market.

The big shifting behavioral trend among retail investors

An intriguing trend observed at tastytrade is how retail investors are engaging with the markets. Until recently, roughly half of customer trades were in index exchange-traded funds (ETFs) like the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust Series 1 (QQQ). However, there has been a notable shift in this pattern, with only 30%-35% of trades now involving index products and related ETFs. Instead, retail investors are increasingly exploring individual underlyings with a bullish bias, such as Microsoft (MSFT) and Netflix (NFLX), particularly toward Netflix. This shift suggests growing customer optimism and potential for further market strength.

Earnings season surprises

With approximately half of the S&P 500 companies having reported their earnings, and another 25% scheduled to do so, this earnings season has been full of surprises. Despite gloomy forecasts, actual earnings have been better than expected, with 80% of companies surpassing expectations. Although overall earnings are still projected to be down by over 7% compared to the previous year, the relatively bullish comments from CEOs and CFOs have been a pleasant surprise for investors. This positive sentiment bodes well for the market's resilience.

Upcoming reports from tech giants and employment data

As the week unfolds, investors eagerly anticipate earnings reports from tech behemoths Apple (AAPL) and Amazon (AMZN). The reports, scheduled for Thursday after the market close, will undoubtedly influence market sentiment. Additionally, on Friday, the July employment data will be released, with analysts expecting the creation of 186,000 new jobs and an unemployment rate of 3.6%. This combination of earnings and employment data will undoubtedly have a significant impact on investor sentiment.

The watchful eye on oil prices

Amid the market's overall complacency, one commodity stands out as a potential risk factor: oil. Recent strength in oil prices has pushed it above $81 per barrel during premarket trading. While other inflation indicators suggest stability, oil has the potential to disrupt everything. It remains a critical factor to monitor, as it could influence future decisions by the Federal Reserve regarding interest rates.

Understanding market complacency and preparedness

Despite the abundance of significant news this week, the volatility index, which measures market volatility, remains below 14—historically, an extremely low level. This low volatility signifies a highly complacent market. However, investors should be cautious, as relatively calm environments can amplify the impact of seemingly benign events. It is crucial for investors to adhere to their long-term objectives and investment plans, ensuring they are prepared for potential market shifts.


The end of July has been a surprising and eventful time for the markets. The impressive year-to-date gains and shifts in retail investor behavior indicate a robust market sentiment.

Earnings reports have been better than expected, with many companies surpassing forecasts, injecting optimism into the market. Tech giants Apple and Amazon's reports, along with the July employment data, will further shape market sentiment. Amidst the prevailing market complacency, vigilance is essential, with a keen eye on oil prices, as they could influence future Federal Reserve decisions. Investors should stay focused on their long-term objectives while remaining prepared for potential market uncertainties.

tastytrade Inc. commentary is for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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