Smaller investors typically get very active in the stock market around this time of year and that tends to boost the companies they favor, according to Bank of America. And with a bull market underway, this seasonal effect could be particularly pronounced this year, according to the firm. Here’s how to capitalize on it. According to Bank of America’s trading desk, its retail clients bought heavily into Tuesday’s market downturn, during which the Dow Jones Industrial Average fell to its worst day since March 2023. Overall, Tuesday marked a bigger skew to buying over selling for retail traders than 90% of the trading sessions over the last year, the traders said in the note. “The latest surge of speculative activity comes as a surprise… but it shouldn’t have. And we think there’s more room to run,” said the trading desk. It shouldn’t be a surprise because around this time of year, smaller traders get their tax refunds back and tend to put a lot of it to work in the stock market, Bank of America found. The tax returns period typically begins in late January or early February. The Bank of America traders put together a basket of stocks that proxy the most retail participation. That basket beat the S & P 500 each of the last 4 years and is on track to do it again this year. Which stocks do small traders love Take a look at some of the stocks in Bank of America’s list of retail investor-favorite proxies. Here are some of the names on the list, and where analysts see them heading next. These retail investors may be attributable for the recent upward gains in some AI stocks, the note continued. Chipmakers AMD and Nvidia represent the first- and third- largest weights in Bank of America’s retail favorites basket, respectively. Nvidia shares have rallied nearly 19% this month ahead of its earnings release Feb. 21. Nvidia is now the most-owned stock on SoFi, the most-mentioned stock on Reddit — and more than half the volume is from off-exchange, per the trading desk. While the retail crowd still loves it, Wall Street professionals are starting to have their doubts. Shares are up 236% over the last 12 months and the consensus price target suggests 7.4% pullback from current levels, according to FactSet. NVDA 1Y mountain Nvidia shares over the last 12 months AMD shares have also doubled over the last 12 months. However, this year has been a different story for the stock; shares took a large hit after the company’s first-quarter forecast fell short of investors’ expectations. The stock is up around 5% in February amid a 19.4% gain year to date. Analysts think there’s room for an additional 5.85% upside ahead. Not guaranteed to win To be sure, not all of the names are winners; the firm notes that retail investors also “love bottom-fishing among the losers.” Tesla is another top retail favorite – but sentiment around the stock is starting to shift. Nvidia has overtaken the electric vehicle maker as the most mentioned stock on Reddit starting around a week before, says Bank of America. Shares have plummeted nearly 22% in 2024 after the company missed on earnings and forecasted a slowdown later this year. Boeing is also a retail darling suffering from a disastrous start to the year. The aircraft maker has struggled with the fallout of loose bolts discovered on its 737 Max 9s after the Alaska Airlines flight incident. Shares are down 3% this month alone, continuing its slide of 21.5% year to date. Bank of America traders think there’s still time to ride this trend. “Peak liquidity is likely still ahead of us, with an average of $75bn of refunds to be issued next week and the week after, and $100bn cumulative over the next 3 weeks,” the traders said. —CNBC’s Michael Bloom contributed to this report.
