Recent data reveals a notable divergence in investor behavior within the U.S. equity market. Foreign investors have significantly reduced their exposure, while retail investors continue to pour money into stocks and ETFs. According to Goldman Sachs, foreign investors withdrew a net -$37 billion from U.S. equities in May—the largest monthly outflow in at least 12 months. This follows a -$7 billion net withdrawal in April, marking the second consecutive month of outflows. Year-to-date, foreign investors have pulled a net -$31 billion from U.S. stocks, a sharp reversal from the net +$201 billion they invested in November and December of last year. This shift comes despite the broader market recovery and the 90-day reciprocal tariff pause that began on April 10th.
Meanwhile, retail investors have maintained their buying momentum. In May, they purchased a net +$23 billion in U.S. equities, adding to the +$40 billion invested in March and April combined. This aligns with the average monthly net purchases of $25 billion observed this year, as reported by JPMorgan. Year-to-date, individual investors have bought a record +$150 billion in ETFs and single stocks. Over the past week alone, retail traders purchased $6.8 billion, with $4.4 billion flowing into Tesla ($TSLA).
However, despite this aggressive buying, the average retail investment portfolio is down -2.6% year-to-date, underperforming the S&P 500, which has gained +1.0% over the same period. Retail net buying slowed in May, dropping to $23 billion after higher inflows earlier in the year. Foreign investor activity has been volatile, with recent outflows contrasting sharply with the strong inflows seen in late 2023, including peaks of $127 billion and $140 billion in prior months.
The contrasting trends suggest growing caution among foreign and institutional investors, even as retail traders remain optimistic. The underperformance of retail portfolios, however, raises questions about whether this enthusiasm can persist if market conditions remain uneven. The data highlights the ongoing divide between different investor groups, with foreign capital rotating out of U.S. equities while domestic retail investors double down on their bets
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Market conditions can change rapidly, and investors should conduct their own research or consult a financial advisor before making decisions.
