According to Vanda Research, shares of Apple and Tesla are becoming more crucial to the performance of retail investors’ portfolios. Any setback in those two stocks might trigger a fresh round of selling.
According to the business, Apple and Tesla make up 34% of the typical retail investor’s stock portfolio. Because Apple and Tesla have beaten the S&P 500 significantly both year to date and over the past year, this concentration has aided the performance of retail investors.
Apple and Tesla both saw positive increases of 3% and 8% over the past year, compared to the S&P 500’s 15% decline. And while the S&P 500 has lost almost 25% of its value this year, Apple and Tesla have lost just 18% and 21%, respectively.
Vanda believes the outperformance is due to Apple’s reputation as a defensive, high-quality company that institutional investors prefer. In contrast, Tesla’s meteoric rise in recent years has allured a large retail shareholder base and has led institutions to be wary of shorting the electric vehicle manufacturer.
Although Tesla and Apple have recently outperformed the market significantly, Vanda warns that any significant decline in their stock prices could be the last straw for ordinary investors’ portfolios, pushing them to give up and sparking a fresh round of selling.
“A positioning puke in these two stocks could be the coup de grace for retail investors’ PnL,” Vanda said.
Following the news that it is reducing the manufacturing of its iPhone 14 due to demand issues, Apple is starting to decline significantly. Despite the market’s uptrend, the stock dropped more than 1% on Wednesday and approximately 4% on Thursday.
According to Vanda, Tesla may ultimately see a similar sell-off as Apple, which would further affect the stock market.
The risk, according to Vanda, is that Apple’s decision to reverse course on its production ambitions might result in a major unwinding of positions, pulling Tesla along on second-round effects.
The one benefit of a retail investor capitulation is that it frequently occurs at or very close to stock market bottoms, making it a contrarian indicator.
“While there is still some more to go, [retail capitulation] is closing in on levels that would signify an equity bottom,” Vanda said. “The normal route to retail capitulation is quick and swift; therefore, we are paying close attention to any additional deteriorating [market] internals.”