Crowd Control: Retail Investors Trigger Turbulence

Global equity markets continued climbing this week, with the US, European, and Asian markets each registering gains of 1–2%. Yet beneath this broad-based improvement, notable volatility emerged in a subset of assets popular with non-professional investors, particularly in gold, thematic stocks, and crypto currency. Retail investors, or non-professional investors, participation has become a growing force in markets, fuelled by social media influence and hype around certain investments.

See below how non-professional investors played a role in shaping market sentiment this week:

• Gold experienced a sharp correction this week. The prized precious metal fell 5.31% to US$4,123.85 an ounce on Tuesday, it’s largest fall in price in 12 years. Retail investors often pile into gold when they see it rising and think the price will keep going up, and since its up almost 40% year to date people want in. When many do this at the same time, the price can swing violently.

• Thematic technology stocks tied to smaller artificial intelligence companies, quantum computing, and nuclear innovation also faced renewed pressure after months of outsized gains driven largely by enthusiasm. But when enthusiasm fades, or a few investors start selling, the price can fall quickly. This is because the demand from non-professional investors can sometimes be very driven by a herd mentality, or fear of missing out with short time horizons, unlike institutions that may hold an investment for years.

• Digital assets showed a similar pattern. Crypto is famous for wild ups and down and retail investors often buy after a big rally, hoping to catch more gains, yet if some sell, others panic and sell too, causing big swings in a very short time. Bitcoin had climbed to a record high of US$123,000 earlier in the year, and this week we saw a price swing of as much as 6.1%.

Think of retail investors like a crowd at a concert. If everyone moves one way, it can create a lot of chaos. In markets, when many small investors buy or sell at the same time, influenced by social media, trends, or hype around certain assets, prices can jump up and down sharply, even if the overall market is calm.

The increasing influence of retail trading activity is becoming a defining feature of the current market environment. According to a recent Barclays report, retail investors have been the primary driver of the current rally in equity markets, pouring more than USD$50 billion into global stocks over the last month. While broader participation can enhance liquidity, it also tends to heighten volatility in trend-sensitive assets.

For long-term investors, this underscores the importance of focusing on the financial fundamentals and maintaining disciplined diversification, rather than following the crowd into popular narratives or hyped assets.

The Noise

• This week in currency markets, the US Dollar rose slightly (up 0.8% according to the Dollar Index) after a rough year, having depreciated about 8.7% against major currencies year to date. It gained some ground versus the Yen, as the Japanese currency came under pressure following elections, while the Euro and Sterling traded in a tight range as investors digested mixed economic signals.
• Precious metal markets saw a pullback in general this week, with price declines not limited to gold. Silver, for example, saw a sharp drop compared to prices last week where it reached a high of US$54 an ounce and then dropped to US$49 an ounce this week, reflecting profit-taking and short-term supply pressures.
• In oil markets, prices were driven higher this week as sanctions eased oversupply concerns. As a result, Brent Crude oil prices were pulled from a five-month low of US$60 a barrel to US$66.