Retail Investors Capitulate? Stock Selling Hits Six-Year High as U.S. Market Tests a Short-Term Bottom
Individual investors have remained highly active in single-stock trading this year amid heightened market volatility. Research data indicate that retail investors are selling individual stocks this week at the fastest pace since the early stages of the COVID-19 pandemic. After a sharp rebound in U.S. stocks on Thursday, the question is whether the pessimism marks a short-term market bottom. Retail investors turn to ETFs after selling stocks Vanda Research said in a report released Wednesday that retail investors on Tuesday posted their largest single-day net selling of individual stocks since the stock-market crash during the COVID-19 pandemic. U.S. stocks entered a correction this month as volatility intensified around the AI theme. Unlike in previous pullbacks, however, retail investors have not aggressively bought the dip and have instead taken a more cautious stance. “Earlier this week, we discussed whether retail flows were about to return to the market. So far, there is very little evidence of that. Instead, on Tuesday, retail investors recorded their largest net selling of individual stocks since the COVID crash,” the Vanda team wrote. Vanda said Tuesday’s selling was concentrated in memory-chip stocks. Micron Technology, Sandisk, Seagate Technology and Western Digital together accounted for 88% of retail investors’ total $213 million in net single-stock selling that day. Retail investors have recorded net selling of individual stocks on nine trading days so far this year. By comparison, in 2021, 2024 and 2025, there was not a single trading day during the full year on which retail investors posted net selling of individual stocks. The memory-chip sector posted a strong rally early in the year but has recently suffered a sharp setback along with the broader semiconductor sector. Vanda said retail participation in individual-stock trading has been exceptionally high this year, with average daily single-stock trading volume reaching a record $15.7 billion in 2026. Although retail selling of individual stocks has been far more frequent than in prior years, several signals indicate that retail investors have not broadly exited the stock market. Vanda found that retail money has continued to flow into more diversified ETFs as a “defensive alternative.” “The market is developing a pattern of selling individual stocks and buying broad-based index ETFs,” Vanda said. For example, retail investors were net buyers on Tuesday of the Roundhill Storage & Semiconductor ETF (DRAM), which invests in storage-related companies globally. The latest FactSet data available as of Wednesday showed that the ETF had fallen nearly 38% this month. Even so, supported by the memory sector’s powerful rally earlier in the year, the fund remained up about 18% over the past three months. Vanda added that retail investors have not left the market but have become “much more selective in their stock picking.” The shift represents a broader behavioral change: Investors are increasingly willing to reduce the risk of holding individual securities and allocate more to ETFs. The firm warned that if the earnings of large technology companies fall short of expectations, the shift could still leave popular momentum stocks under pressure. Goldman Sachs also released data this week showing that, as the impact of deleveraging has gradually been absorbed, the most crowded positions in the global AI trade have rapidly unwound and technology-stock crowding has fallen to its lowest level in nearly a year. The Wall Street firm wrote that historical experience shows momentum reversals following the breakdown of crowded trades typically overshoot. It said the current episode ranks among the more severe positioning washouts in history, suggesting that large-scale forced selling may have largely run its course. BTIG warns that the rebound could be a trap U.S. stocks rebounded sharply on Thursday after Microsoft reported better-than-expected results. Jonathan Krinsky, BTIG’s chief market technician, warned that the current rebound in momentum stocks is unlikely to last. He said the market should experience a temporary respite after what he described as the largest and fastest momentum-stock crash in modern history, but cautioned investors against blindly buying every dip. The Philadelphia Semiconductor Index, or SOX, fell 5.3% on Wednesday, its worst one-day performance since early July. The index was still up 45% for the year, far ahead of the Nasdaq Composite’s 5% gain. The 30-year Treasury bond sold off on Wednesday, pushing yields higher and weighing heavily on technology stocks. At the same time, the MSCI World Sector Neutral Momentum Index plunged 17.4% over four days, its largest four-day decline on record. The drop exceeded those seen during the bursting of the internet bubble, the 2022 bear market and the market adjustment following the COVID-19 pandemic. From a tactical perspective, Krinsky expects technology stocks to rebound, but based on historical patterns he believes the move is likely to be a bull trap. He noted that after the internet bubble peaked in 2000, the Philadelphia Semiconductor Index plunged 35% in one month, then rebounded 37% before falling again. “We cannot confirm that history will repeat itself, but if a rebound of roughly 20% occurs, the SOX index will reach its 50-day moving average. We believe the index will most likely encounter resistance there and turn lower again, ultimately retesting support at its 200-day moving average,” Krinsky said. Krinsky said a rebound in momentum sectors could come at the expense of recently leading nontechnology sectors, which could see capital drain away. He also said the 30-year Treasury yield remains at risk of a multiyear breakout to the upside. If yields continue to rise, they would create a headwind for all of the assets that have led the market recently. Rising yields would hit technology stocks in two ways. Technology valuations depend heavily on expectations for earnings far in the future, and higher risk-free rates reduce the present value of those future cash flows. Higher yields also increase companies’ financing costs. The market has already begun to question whether continued increases in AI capital spending by large technology companies will produce the expected returns.
Retail investors turn to ETFs after selling stocks
Vanda Research said in a report released Wednesday that retail investors on Tuesday posted their largest single-day net selling of individual stocks since the stock-market crash during the COVID-19 pandemic.
U.S. stocks entered a correction this month as volatility intensified around the AI theme. Unlike in previous pullbacks, however, retail investors have not aggressively bought the dip and have instead taken a more cautious stance.
“Earlier this week, we discussed whether retail flows were about to return to the market. So far, there is very little evidence of that. Instead, on Tuesday, retail investors recorded their largest net selling of individual stocks since the COVID crash,” the Vanda team wrote.
Vanda said Tuesday’s selling was concentrated in memory-chip stocks. Micron Technology, Sandisk, Seagate Technology and Western Digital together accounted for 88% of retail investors’ total $213 million in net single-stock selling that day.
Retail investors have recorded net selling of individual stocks on nine trading days so far this year. By comparison, in 2021, 2024 and 2025, there was not a single trading day during the full year on which retail investors posted net selling of individual stocks.
The memory-chip sector posted a strong rally early in the year but has recently suffered a sharp setback along with the broader semiconductor sector. Vanda said retail participation in individual-stock trading has been exceptionally high this year, with average daily single-stock trading volume reaching a record $15.7 billion in 2026.
Although retail selling of individual stocks has been far more frequent than in prior years, several signals indicate that retail investors have not broadly exited the stock market. Vanda found that retail money has continued to flow into more diversified ETFs as a “defensive alternative.”
“The market is developing a pattern of selling individual stocks and buying broad-based index ETFs,” Vanda said. For example, retail investors were net buyers on Tuesday of the Roundhill Storage & Semiconductor ETF (DRAM), which invests in storage-related companies globally.
The latest FactSet data available as of Wednesday showed that the ETF had fallen nearly 38% this month. Even so, supported by the memory sector’s powerful rally earlier in the year, the fund remained up about 18% over the past three months.
Vanda added that retail investors have not left the market but have become “much more selective in their stock picking.” The shift represents a broader behavioral change: Investors are increasingly willing to reduce the risk of holding individual securities and allocate more to ETFs. The firm warned that if the earnings of large technology companies fall short of expectations, the shift could still leave popular momentum stocks under pressure.
Goldman Sachs also released data this week showing that, as the impact of deleveraging has gradually been absorbed, the most crowded positions in the global AI trade have rapidly unwound and technology-stock crowding has fallen to its lowest level in nearly a year.
The Wall Street firm wrote that historical experience shows momentum reversals following the breakdown of crowded trades typically overshoot. It said the current episode ranks among the more severe positioning washouts in history, suggesting that large-scale forced selling may have largely run its course.
BTIG warns that the rebound could be a trap
U.S. stocks rebounded sharply on Thursday after Microsoft reported better-than-expected results.
Jonathan Krinsky, BTIG’s chief market technician, warned that the current rebound in momentum stocks is unlikely to last. He said the market should experience a temporary respite after what he described as the largest and fastest momentum-stock crash in modern history, but cautioned investors against blindly buying every dip.
The Philadelphia Semiconductor Index, or SOX, fell 5.3% on Wednesday, its worst one-day performance since early July. The index was still up 45% for the year, far ahead of the Nasdaq Composite’s 5% gain.
The 30-year Treasury bond sold off on Wednesday, pushing yields higher and weighing heavily on technology stocks. At the same time, the MSCI World Sector Neutral Momentum Index plunged 17.4% over four days, its largest four-day decline on record. The drop exceeded those seen during the bursting of the internet bubble, the 2022 bear market and the market adjustment following the COVID-19 pandemic.
From a tactical perspective, Krinsky expects technology stocks to rebound, but based on historical patterns he believes the move is likely to be a bull trap.
He noted that after the internet bubble peaked in 2000, the Philadelphia Semiconductor Index plunged 35% in one month, then rebounded 37% before falling again.
“We cannot confirm that history will repeat itself, but if a rebound of roughly 20% occurs, the SOX index will reach its 50-day moving average. We believe the index will most likely encounter resistance there and turn lower again, ultimately retesting support at its 200-day moving average,” Krinsky said.
Krinsky said a rebound in momentum sectors could come at the expense of recently leading nontechnology sectors, which could see capital drain away. He also said the 30-year Treasury yield remains at risk of a multiyear breakout to the upside. If yields continue to rise, they would create a headwind for all of the assets that have led the market recently.
Rising yields would hit technology stocks in two ways. Technology valuations depend heavily on expectations for earnings far in the future, and higher risk-free rates reduce the present value of those future cash flows. Higher yields also increase companies’ financing costs.
The market has already begun to question whether continued increases in AI capital spending by large technology companies will produce the expected returns.