Retail investors are on pace to sink a record $1 trillion into stocks this year — and the flows have actually accelerated over the past month, JPMorgan says

• Retail investors have poured nearly $500 billion into equity funds this year, JPMorgan said. 
• At the current pace, they could be on track to sink a record $1 trillion into stocks in 2021. 
• The bank also noted that retail trading has again accelerated since mid-May after cooling off following the GameStop trading saga in January.

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Retail investors could be on pace to pour a record $1 trillion into stocks in 2021, JPMorgan said.

Year-to-date, retail investors have poured approximately $485 billion into equity funds, while the retail impulse into individual stocks and options has been re-accelerating since mid-May, said a team led by global markets strategist Nikolaos Panigirtzoglou in a recent note.

A metric that measures retail buying in bullish call options rose to a record high in January at the peak of the GameStop trading frenzy. As the market cooled off, the metric subsided between February and April. Now, it has picked back up and currently sits at its highest level since January. 

The record inflows come as retail investing is ultra-popular and social-media interest in "meme stocks" like AMC and BlackBerry elevates stock prices to levels that are seemingly unconnected to fundamentals. 

At the end of 2020, JPMorgan estimated that retail investors would put $500 billion into stocks in all of 2021. But if the current pace of buying continues, that number could jump to $1 trillion, Panigirtzoglou said. 

Read more: 2 hedge fund veterans say 'we know how this movie ends' as investors pile into meme stocks. They unpack their strategy for finding market outliers — which 'made a killing' in 2020's volatility

Other metrics that JPMorgan uses to gauge retail investing flows also show that the state of the retail trader is stronger than ever. For example, a basket of stocks popular with US retail-trading platforms have rebounded since mid-May and have outperformed the S&P 500 since March 2020. (JPMorgan did not disclose the individual stocks in the basket.

Also, the performance of a portfolio with 50% allocated to the Nasdaq and 50% to the Russell 2000 has outperformed the S&P 500 and rallied since mid-May. JPMorgan said this 50/50 split between tech stocks and small caps reflects the barbell trade that retail investors tend to favor. 

However, it remains to be seen if the pace of retail investing will continue throughout 2021, and what areas of the stock market it will be concentrated in.

Vanda Research doesn't see meme-stock momentum continuing for much longer.

JPMorgan

"Squeezing highly shorted stocks is quickly falling out of fashion," senior strategist Ben Onatibia and analyst Giacomo Pierantoniwhich said earlier this week.