Traders’ Insight: Who’s the Marginal Buyer?
When a stock goes up, the simplest explanation is that buyers exceeded sellers. And when a stock goes down, likewise, it’s easy to say that sellers exceed buyers.
That leads to a question of who’s doing the buying. If there’s big buying volume, chances are a fund or other institution are moving in. The same is true when a company sees a big selloff. That leaves the question of the marginal buyer.
The stock market this year has been driven by a rebound off of last year’s lows. The big winners have been big tech stocks. These companies tend to see steady buying volume. As large-cap stocks, they tend to get regular buying interest from funds and institutions, even those just buying an index.
This momentum in big-name stocks can attract both big institutions and retail investors. The explosion higher in artificial intelligence (AI) stocks this year may be more retail-investor driven.
Given poor market sentiment among investors right now, it’s clear that even if retail investors are driving the market right now, they won’t forever. That will leave big fund buying.
That could create a situation where markets trend higher thanks to big-cap companies. But those companies will look increasingly overvalued, while smaller-cap stocks start to look undervalued and an opportunity in the months ahead.