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Retail traders are piling into risky bets after recouping all the losses made in the last two years as a rally in AI poster child Nvidia’s (NVDA-Q) shares and bets on easing monetary policy pushed U.S. stocks to record levels.

The S&P 500 has jumped 9% this year, boosted partly by a 72% surge in its best performing stock, Nvidia, that holds the highest weightage in average retail traders’ portfolio at 9.3%.

This helped the average individual investor portfolio to wipe off all losses made since the bear run started in 2022, according to Vanda Research.

“As the focus shifts from recouping losses to making new highs, retail (trader’s) willingness to take on more risk has clearly increased,” Vanda Research analysts Marco Iachini and Lucas Mantle said.

Individual investors have ramped up buying triple leveraged exchange traded funds (ETFs), which are a means for day traders to place short-term bets that sometimes track twice or thrice the daily return of the underlying index or stock.

The 10-day average of U.S. retail traders’ purchase of ProShares UltraPro QQQ (QQQ-Q), which amplifies the daily moves of Nasdaq 100 index by threefold, hit its highest in about two years in mid-March, Vanda Research data showed.

At the same time, investments in Direxion Daily Semiconductor Bull 3X Shares (SOXL-A), which triples a chip index’s daily performance - hit their highest level this year in at least three.

The retail traders’ high-risk, high-return trade has gained traction on improving risk appetite, while investors are also putting fresh capital to work, benefiting popular technology stocks amid the AI excitement.

“Tech stocks are retail investors favorites across the global platform, making up all of the top ten most held,” said Ben Laidler, global markets strategist at digital brokerage eToro.

AI and ‘picks and shovels’ semiconductor stocks Nvidia, Advanced Micro Devices (AMD-Q) and Taiwan Semiconductor (TSM-N) have witnessed the largest holder increases this year, Laidler added.

New capital invested in U.S. stocks jumped 52% sequentially in the first quarter to the highest level since the same period in 2022, according to eToro.

Another sign of speculative trading that hearkened back to the 2021 meme stock mania was the strong reception to former U.S. president Donald Trump’s loss-making Trump Media and Technology Group (DJT-Q) by individual investors, even as broader trading activity was nowhere near the levels seen three years ago.

“We are still a little below the levels seen in 2021 in terms of both volume and value of trades,” Laidler said.

While the first quarter is seasonally the strongest for retail purchases, the pace of buying typically weakens into the year-end, analysts have noted.

The recent retail trading re-acceleration could have legs but “we are expecting retail activity levels to moderate somewhat from the first quarter levels and gradually decline into 2025,” KBW analysts said in a note.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 4:00pm EDT.

SymbolName% changeLast
NVDA-Q
Nvidia Corp
-1.99%924.79
QQQ-Q
Nasdaq QQQ Invesco ETF
-0.05%451.76
SOXL-A
Semiconductor Bull 3X Direxion
-1.86%45.4
AMD-Q
Adv Micro Devices
+1.14%164.47
TSM-N
Taiwan Semiconductor ADR
-0.36%151.68
DJT-Q
Trump Media & Technology Group Corp
-2.36%50.92

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