Retail Crowding Drives Alpha, Institutions Are Watching

Retail traders are running the show in the market.

Citigroup’s proprietary basket of 46 stocks most favored by the retail crowd, which includes high-beta names like SoFi Technologies and Riot Platforms, has delivered a staggering 30% return since the start of September. This performance easily eclipses the S&P 500 Index’s more modest 4.3% gain over the same period.

The sheer volume of this buying is notable. Retail trading volume has recently spiked to an all-time high, defying typical weak seasonal patterns generally seen in October.

Data confirms the accelerating liquidity injection. Weekly purchases by retail investors accelerated to $7 billion, up from a $5.3 billion average in the months prior, according to JPMorgan data.

Interactive Brokers strategist Steve Sosnick notes that for retail traders, “every dip is perceived as a buying opportunity, and uptrends are something to be chased,” reflecting a FOMO-driven, momentum-focused approach.

Institutions Size Up the Risk

The buying spree is overwhelmingly concentrated in the growth segment. Renewed optimism around AI is fueling much of the activity, with AI-linked names remaining the epicenter of retail enthusiasm. Leaders of the Magnificent Seven, specifically Tesla, Nvidia, and Meta Platforms, continue to see sizable inflows. Simultaneously, the risk-on sentiment is visible across the capital structure.

Retail gamma supply, a measure of options-selling activity, recently jumped to an all-time high of $93 billion, led by technology and communications stocks, according to JPMorgan Chase & Co.

This concentrated bet is drawing scrutiny from quantitative strategists. 22V Research analyzed similar retail favorite baskets and highlighted overextended momentum. They note the advance is heavily weighted toward technology shares, and a small group of quantum computing stocks, specifically Rigetti Computing, D-Wave Quantum, and IonQ, are accounting for the majority of the recent outperformance.

Dennis DeBusschere, chief market strategist at 22V Research, issued a clear warning about this setup. Due to their concentrated contribution, “any correction in these quantum names would disproportionately impact the broader index.” He concludes that even minor shifts in the cost of capital (interest rates) or a rise in market volatility could be the catalyst for a sharp, immediate drawdown in these retail-heavy positions.