By Gordon Gottsegen
Individual investors in Europe have been bearish on the U.S. indices for most of 2024
Major U.S. stock indices have been on a tear in 2024. Both the S&P 500 SPX and Nasdaq Composite COMP closed at new record highs on July 10, but European investors don’t think the rally will last.
SERIX data, which measures European retail investor sentiment, shows bearish trading behavior for the S&P 500 and Nasdaq 100 in the month of June.
SERIX sentiment data is compiled by Spectrum Markets, a pan-European trading venue.
European retail traders were bullish towards the U.S. indices in August through October of 2023, and then briefly tilted again towards bullish trading behavior in April 2024. But according to SERIX data, individual investors have been mostly bearish since the end of 2023.
U.S. indices have been dominated by the gains of Magnificent 7 stocks, like Apple Inc. (AAPL), Meta Platforms Inc. (META) and Nvidia Corp. (NVDA). A lot of those gains have been due to the overall hype surrounding artificial intelligence. Spectrum Markets believes that this narrow stock market breadth is one of the reasons that European investors are uneasy.
“The strong performance of Nvidia has significantly boosted both U.S. indices. However, some retail investors may now be skeptical about the sustainability of this growth or may simply be engaging in profit-taking,” Michael Hall, head of distribution at Spectrum Markets, wrote in a note.
“Both U.S. indices are strongly driven by the ‘Glorious Seven’ stocks: Nvidia, Meta, Amazon, Microsoft, Alphabet, Apple and Tesla. Eight of the ten largest companies in the world are based in the United States, five of which are pure technology stocks closely tied to Artificial Intelligence (AI). The development and impact of AI will continue to play a crucial role and strongly influence both major U.S. indices,” he continued.
While taking profits when stocks are at record highs is a healthy behavior for investors, if European investors kept up this bearish attitude for most of 2024 they may have missed out on major gains. The S&P 500 is up about 19% year-to-date, while the Nasdaq Composite is up more than 26%.
Meanwhile, data from Vanda Research shows that despite slower inflows, U.S. retail investor have remained bullish in 2024, with more buying activity than selling. That same data shows that U.S. investors have been enthusiastic about buying Magnificent 7 and other U.S. mega-cap tech stocks. This is especially true for June 2024, where 29% of all retail investor inflow went towards buying Magnificent 7+ stocks, which includes Netflix Inc. (NFLX) and Advanced Micro Devices Inc. (AMD).
This divergence in attitudes between U.S. and European retail investors may lead to very different portfolio outcomes by the end of the year. Unless, of course, we see a reversal in U.S. stocks.
-Gordon Gottsegen
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07-11-24 1044ET
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