Tesla remains a favorite among retail investors despite facing a rough start to 2024. The automaker’s stock has fallen 24% this year, while the S&P 500 has gained nearly 4%. Recalls, lawsuits, and Elon Musk’s leadership have contributed to the decline, but retail investors seem unfazed.
Tesla was the most popular stock purchased by Charles Schwab clients in January, highlighting their continued enthusiasm. This trend extends to other Big Tech names like Nvidia, Amazon, Microsoft, and AMD. Joe Mazzola, director of Schwab Trader Education, believes retail investors see Tesla as more than just an automaker, attributing its valuation to Elon Musk’s influence. He expects the stock to eventually trade on fundamentals like other mature growth companies.
Tracking retail investor behavior provides valuable insights into market sentiment. Mazzola views their actions as a “third prong” to investor analysis, complementing fundamental and technical analysis. January’s moderate trading activity among retail investors reflects a cautious optimism and awareness of potential market corrections.
The economic backdrop and sector rotation played a role in January’s trading patterns. Investors initially favored defensive sectors like utilities, real estate, and financials as interest rates declined. However, rising rates later in the month led to a shift towards growth stocks, with the “Magnificent Seven” (including Tesla) regaining popularity. Retail investors, drawing parallels to 2023, opted for familiar growth plays amidst rising rates.
Retail investors often follow institutional investors, seeking guidance from established players. Mazzola emphasizes this dynamic in Schwab’s educational offerings. The recent rotation reflects this trend, with retail investors mirroring the shift towards growth stocks initiated by larger institutions.
The Fed’s stance on interest rates continues to influence market expectations. While Chair Powell expects rate cuts later in 2024, he downplayed the possibility of a March reduction, causing a disconnect between Wall Street’s predictions and the Fed’s guidance. Despite this mismatch, Powell reiterates the importance of price stability and emphasizes the Fed’s commitment to achieving their 2% inflation target.
23andMe, a former tech darling, faces delisting threats due to its plummeting stock price. CEO Anne Wojcicki remains optimistic, highlighting the company’s focus on drug development and its potential to revolutionize healthcare through genetic sequencing. However, the long timeline for drug discovery raises questions about investor patience and the company’s ability to secure funding before its cash runs out.