Retail investors are getting cold feet about stocks, just when the market needs them most

Hedge funds reduced exposure last week, and retail investors are no longer so keen to ‘buy the dip’ Retail investors are getting cold feet about stocks, just when the market needs them most. High energy prices and fading consumer sentiment are sapping the appetite of individual traders, while the spike in U.S. Treasury bond yields to in excess of 5% suddenly provides more competition for cash.

Ben Snider, chief equity strategist at Goldman Sachs, published a research note late Friday that pointed to retail participation in the stock market declining by around a fifth since the summer and by 45% compared with late 2025. For Snider, this is consistent with trends in personal savings rates and more expensive gas prices. There is also the distraction for retail investors that is now provided by prediction markets, which allow them to express a view on stocks without buying them outright.

One year ago, Snider explains, prediction-market volumes were about $5 billion monthly. Now this figure is more like $78 billion. This isn’t to mention the cash that floods into exchange-traded funds or options markets.

How to think of the 60/40 portfolio amid rising bond yields Play video: How to think of the 60/40 portfolio amid rising bond yields Very recently, Goldman has detected a slight uptick in retail activity, a slight “buy the dip” default reaction to falling stocks, but overall this has not been enough to arrest the correction. Your daily dive into MarketWatch, featuring story spotlights, market movers and more you Need To Know to start your day. I would like to receive updates and special offers from Dow Jones and affiliates.

I can unsubscribe at any time. Last week’s equity-market turbulence inflicted significant damage to hedge-fund trading books. Risk managers de-risked and de-levered.

Meyrick Chapman, principal and founder of Hedge Analytics, commented on “massive U.S. equity hedge fund dislocation on Thursday in particular.” He highlighted how exaggerated some moves were in the most popular hedge fund longs and shorts and pointed to it being the second-most volatile day of the year for this class of stocks. Given rising equity supply, though, markets need household demand for U.S. equities to pick up the slack, despite the volatility Chapman identifies. In the first half of 2026 retail investors did just that, buying $840 billion in stocks.