Retail traders are putting money to work during this stock-and-bond pullback, but they are being cautious about where they are deploying their cash, according to Vanda Research. Trading data shows that retail investors are focused on funds that generate income and are relatively insulated from the moves in interest rates, the firm said in a note on Thursday. “As bond prices continue to drop we’ve seen a surge in Treasury ETF purchases from the retail community over the past week. … Nevertheless, the majority of the increase in inflows is concentrated in Money Market Funds and short maturity ETFs, mainly because they are risk-free and provide a higher yield compared to longer-duration Treasuries,” the note said. US10Y YTD mountain Bond yields have taken another leg higher in September. Vanda also pointed out that gold stocks and ETFs have also been climbing in September, another sign of a defensive mindset for investors. Investors have been buying stocks, too, but in the form of broad market ETFs such as the SPDR S & P 500 Trust (SPY) rather than individual stocks, according to Vanda. “When the stock market is performing poorly, retail investors tend to favor these products because the equity market tends to rise in the long term, and as a result, the retracement offers a ‘safe’ upside potential. During optimistic market periods, they prefer picking individual stocks, as they have more available capital to risk and because the broader stock market has limited potential for significant gains,” the note said. The retail behavior comes as the first-half rally for stocks peters out, with the S & P 500 down about 4% in the fourth quarter. Meanwhile, the 10-year U.S. Treasury yield also jumped to a 15-year high earlier this week, another milestone in a rough two-year stretch for bond prices.
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