Summary of Key Points
Recent volatility in the U.S. stock market has led to a noticeable shift in retail investor behavior: on one hand, they are selling individual stocks at the fastest pace since the beginning of the pandemic (especially those in the memory chip sector), and on the other hand, they are turning to exchange-traded funds (ETFs) to diversify their risks. Tech stocks, particularly those in the AI sector, have experienced significant corrections. Goldman Sachs believes that the crowded positions in AI-related trades have largely been cleared, but BTIG warns that any potential rebound on Thursday could be a "trapping" strategy. Rising U.S. Treasury yields continue to press down on tech stock valuations, posing a potential risk to the market.
1. Retail Investors' Major Shift: Selling Stocks and Buying ETFs
Recent retail investor activity is quite intriguing—they are selling large amounts of individual stocks and then purchasing ETFs as a means of hedging their risks.
Data from Wanda Research shows that on Tuesday, retail investors set a new record for the largest daily net sale of individual stocks since the pandemic outbreak, with $213 million in sales, 88% of which came from memory chip companies such as Micron and Samsung. This year, retail investors have been net sellers of stocks for nine trading days, whereas in 2021, 2024, and 2025, there was not a single day when they were net sellers throughout the entire year, indicating their current cautiousness.
However, retail investors have not completely withdrawn from the market; instead, they have changed their strategy to buying ETFs. An ETF is a portfolio of stocks, so purchasing an ETF in the memory chip sector means holding shares in multiple global memory companies, which reduces risk compared to investing in just one stock. Wanda describes this as the new norm—retailers prefer to earn less but avoid significant losses on any single stock.
2. The Memory Chip Sector: From a Hot Stock to a Hot Potato
The memory chip sector was a "star sector" at the beginning of the year, experiencing rapid gains, but it has suffered heavy losses alongside the overall semiconductor market correction.
Why are retail investors selling these stocks? Because they have appreciated too much, and now there is significant pressure from the correction. For example, the Roundhill Memory Chip ETF has fallen nearly 38% this month, but due to its initial gains, it still has risen 18% in the past three months, indicating that the profits made earlier have not been completely lost. However, retail investors are now worried and are quickly taking profits or cutting losses.
This also reflects a weakening of confidence in the AI theme: AI requires a large amount of memory chips, and while there was optimism about the demand for these chips, the current sector volatility is too high for retail investors to bet on individual stocks.
3. What Do Institutions Think?
The views of two institutions are completely opposite:
- Goldman Sachs: The most crowded positions in AI-related trades (stocks that many investors were buying into) have been quickly cleared, and the congestion level in tech stocks has dropped to a one-year low. Historically, such clearings have led to significant price drops, but this time it represents a relatively thorough cleansing, suggesting that forced selling (passive liquidation) is largely complete—implying that short-term selling pressure may ease.
- BTIG: A potential rebound on Thursday, possibly driven by positive news like Microsoft's earnings, could be a "trapping" strategy. For example, after the dot-com bubble burst in 2000, the semiconductor index plummeted by 35% and then rebounded by 37%, only to fall back again. The semiconductor index has still risen 45% this year, and any rebound to the 50-day moving average (a technical resistance level) could face resistance, indicating that it might be a false signal for buying.
4. U.S. Treasury Yields: The Hidden Threat to Tech Stocks
Rising yields on 30-year Treasuries are having a dual impact on tech stocks:
1. Valuation Pressure: The value of tech stocks depends on future earnings. For instance, if a company expects to earn $10 billion in ten years, how much is it worth now? Higher interest rates reduce this "present value," effectively lowering the stock's valuation.
2. Increased Financing Costs: Tech companies, especially those in the AI sector, need substantial funding for research and development. Higher interest rates make borrowing more expensive, raising doubts about whether these investments will be profitable.
BTIG also warns that yields may continue to rise, which could suppress all assets that have performed well, including tech stocks.
Conclusion
The core contradictions in the current market are:
- Retail investors are shifting towards ETFs as a means of hedging risks.
- Although crowded positions in tech stocks have been cleared, there are doubts about any potential rebounds.
- Rising U.S. Treasury yields continue to put pressure on tech stock valuations.
For individual investors, it is important to avoid blindly chasing market rebounds, especially in sectors that have seen rapid gains earlier this year. If you want to participate in the market, ETFs may be a more cautious and risk-diversified option. It is also crucial to closely monitor U.S. Treasury yields and financial reports from tech companies, as these factors will play a key role in determining future market trends.