The rise of retail investors in the US stock market: Record funds in 2025, Wall Street institutions are forced to "dance with retail investors."

In 2025, the amount of funds flowing into the U.S. stock market from retail investors will reach a historic high. Driven by expectations of interest rate cuts, individual investors have become the main force behind the stock market rebound that may continue into next year. According to data from JPMorgan Chase, as of 2025, the amount of funds retail investors have invested in the U.S. stock market has increased by 53% compared to the same period last year, reaching $197 billion, and is 14% higher than the record $270 billion set during the retail trading frenzy peak in 2021. At the same time, JPMorgan's special trading data shows that retail trading accounts for approximately 20%-25% of total trading activity this year, reaching a historical high of around 35% in April. Individual investors have been buying quality stocks at low prices during market sell-offs, most notably after retail investors helped push the S&P 500 index to a new high following the global market crash in April triggered by President Donald Trump's "Liberation Day" tariff policy. The benchmark index has already risen by about 16% this year. Stephen DeSanctis, a small-cap stock strategist at Jefferies Financial Group Inc., said, "Retail investors are here to stay long term, especially in 2026. They have made money this year, enjoy trading stocks, and have apps to trade with. We will continue to see them having a strong presence." Over the years, with the rise of low-cost, zero-commission brokers like Robinhood and Interactive Brokers Group, Inc. Class A, the barrier for ordinary Americans to enter the market has become lower and costs have become cheaper, leading to a steady increase in retail participation in the stock market. This trend gained widespread attention in 2021 when many Americans, due to being at home during the pandemic with ample funds, engaged in everything from GameStop Corp. Class A to large tech stocks using mobile trading platforms. According to data from retail brokers and executives, companies like NVIDIA Corporation (NVDA.US) and Palantir, AI concept stocks, have been the top picks this year. The latter saw its value more than double as retail investors "bought the dip" when institutional investors exited due to valuation concerns. Another retail favorite, Tesla, Inc. (TSLA.US), hit a historic high on December 17, the first time since the end of 2024. Steve Sosnick, Chief Strategist at Interactive Brokers Group, Inc. Class A, said, "The two most active stocks on our platform are usually NVIDIA Corporation and Tesla, Inc. These examples show that individual investors are shaping the market narrative and in many cases forcing institutional investors to follow suit." With investors becoming more thematic in their investments, quantum computing companies, uranium miners, metal miners, and rare earth companies are also attracting increasing retail interest. Retail traders favor ETFs Executives from major trading platforms say that a key feature of retail trading in 2025 is that they increasingly prefer exchange-traded funds (ETFs) that track stock indexes, cryptocurrencies, and commodity trading. Brian Lake, Co-Head of Global Wealth Third Party Distribution at Goldman Sachs Group, Inc. Asset Management, said, "Investors continue to be drawn to ETFs for their tax efficiency, transparency, and ability to trade all day." Brett Kenwell, U.S. Investment Analyst at eToro, said that Direxion's triple-long semiconductor and triple-short ETFs rank among the top five in terms of dollar volume on their platform. Joe Mazzola, Head of Trading and Derivatives at Charles Schwab Corp., said that retail investors are becoming more rational in their trading, with fewer meme frenzies and shorter durations. He added, "Retail investors have gained more insight into market dynamics this year." Potential interest rate cuts seen as key catalyst Analysts and brokers expect that potential interest rate cuts by the Federal Reserve next year will continue to boost the market, allowing retail momentum to extend into 2026. Increased market volatility may trigger pullbacks, which could also attract individual investors willing to bet on rebounds, although recent evidence suggests that their enthusiasm for such opportunities is not as strong as in the past. NASDAQ plans to submit an application to the U.S. Securities and Exchange Commission (SEC) to launch 24-hour stock trading, a move analysts believe will further accelerate the growth of retail investors. David Russell, Global Head of Market Strategy at TradeStation, said, "We are in a golden age of retail investing where people can access knowledge more easily, enter the market itself, and use advanced trading platforms." However, analysts suggest that due to lingering doubts about AI stocks that have dominated the market this year, they do not expect the market to surpass the records set in 2025 in the next year, as investors may consider diversifying their portfolios. Kenwell from eToro said that ETFs in financials, communications, discretionary consumer, energy, mining, and gold mining sectors might perform well. "But ultimately, retail investors love tech stocks, so if there is any kind of volatility in 2026, that's where they will likely return."