Retail investors drive stocks to a pre-Christmas all-time high—and Wall Street sees a moment to sell

S&P 500 futures ticked downward 0.22% this morning, an indicator that some traders decided overnight to lock in their gains from yesterday’s close, when the index reached a new all-time high of 6,901. The peak was entirely predictable, given that U.S. Federal Reserve chairman Jerome Powell delivered a new dose of liquidity, as expected, via Wednesday’s 0.25% interest rate cut. Nasdaq 100 futures were down 0.51% this morning, premarket, as traders picked winners and losers in the tech sector. Oracle lost another 1% overnight. It’s down more than 9% over the last five sessions after reporting revenue below expectations and capital expenditure above expectations. Alphabet (Google) by contrast was up 0.26% in overnight trading. The bigger picture is the fact that the S&P 500 has now risen 17.33% year to date. The trigger for that came from Powell telegraphing 175 basis points of cuts since last year. But the markets have also been driven by retail investors—individuals, as opposed to financial institutions—buying into exchange-traded funds and individual tech stocks, according to Arun Jain and his colleagues at JPMorgan.

In the week up to December 10, retail investors ploughed $7.8 billion into stocks, above the $6.3 billion weekly average. “Retail investors continued to favor ETFs (+$6.3B) over Single Stocks (+$1.5B),” they told clients in a note seen by Fortune.

“2025 is set to be a record year for retail traders in terms of flows (tracking at ~1.9x the 5y avg), 53% above the levels seen last year and 14% above the previous peak during the retail mania of 2021,” they said.

Retail investors probably did very well in the markets this year because they tended to buy the dips—there was a 38% gain between the market’s April low and yesterday—they bought ETFs, and they bought gold (up 65% year to date), the JPM team said.

Retail trading volume has doubled since 2010, according to the Financial Times, and individual investors are now more active than mutual funds and hedge funds.

Retail investors are so enthusiastic for risk assets that some people on Wall Street are starting to worry about it. The Bank of International Settlements—a sort of bank for central banks—published a paper recently arguing that retail traders now represent the dumb money in the market.

“Retail investors continued to pour money into U.S. equity funds, even as institutional investors gradually withdrew,” the bank wrote. “Appetite for precious metals may underscore market participants seeking at least some safe asset exposure in the event that things turn sour. But part of the surge can also be traced to investors trying to take advantage of the momentum in search of price appreciation, consistent with elevated risk-taking.”

Michael Hartnett and his colleagues at Bank of America see it as as sell-signal. Their “Bull & Bear Indicator”—a gauge that measures “investor fear and greed” from technical market data such as fund flows—now stands at 7.8, just below the “extreme bullishness” level that suggests it might be a good time to cash out:

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

S&P 500 futures were down 0.22% this morning. The last session closed up 0.21% to hit a new record high of 6,901.
STOXX Europe 600 was up 0.37% in early trading.
The U.K.’s FTSE 100 was up 0.38% in early trading.
Japan’s Nikkei 225 was up 1.37%.
China’s CSI 300 was up 0.63%.
The South Korea KOSPI was up 1.38%.
India’s NIFTY 50 was up 0.51%.
Bitcoin went to $92K.