JPMorgan comments on cooling earnings-season sentiment: US retail investors shift defensive, AI sector shows marked divergence

JPMorgan has recently released its "Retail Radar" weekly report on retail investor behavior, focusing on the 2026 Q3 earnings window, the Federal Reserve's interest rate meeting, and the black swan event of the Brazilian election. Data shows that overall risk appetite among US individual investors has declined markedly, trading activity has fallen sharply, capital is rotating from offensive growth sectors toward defensive styles, and within the AI supply chain there is a clear divergence in earnings and capital flows, with external macro events further exacerbating market volatility. This week, total net retail inflows were only US$3.3 billion, less than half the 12-month average, overall trading activity stood at the 5th percentile of history, and ETF trading fell to an extremely low level of 0.4%. Investors prefer trading ETF products, with willingness to participate in individual stocks sluggish. At the sector level, retail investors maintained net buying only in technology and communication services, while the remaining sectors such as healthcare and financials generally saw selling. The internal structure of the technology sector has changed, with capital continuing to flow into semiconductors and hardware, while the software sector saw capital reductions; among the seven major tech giants, Nvidia, Google, and Tesla saw retail additions, while Microsoft and Apple saw small net selling. Notably, this month saw the first net retail selling of tech stocks, which was not profit-taking after a rally but rather reflected the market's cautious attitude toward the AI trade. Market-wide crowding in the low-volatility factor has risen significantly since June, and the characteristics of defensive capital allocation are becoming increasingly clear. In this earnings season, AI cloud vendors' results have been polarized. Microsoft's Azure cloud revenue surged 48% year-over-year, overall cloud business grew 30%, capital expenditure continued to increase, and the results received positive market feedback; by contrast, Google's revenue and profit fell short of market expectations, with shares plunging 11% after hoursalthough cloud business and user data performed reasonably, high AI capital expenditure heightened market concerns. SK Hynix delivered better-than-expected results, validating the memory chip upcycle, yet retail investors chose to take profits on strength; Oracle raised its free cash flow guidance to ease debt concerns, and its shares surged intraday, but it likewise saw retail profit-taking. Amazon has not yet disclosed results, and institutions have raised their AWS growth expectations, optimistic about the earnings elasticity from GPU capacity expansion and price increases. At the macro level, the Federal Reserve kept rates unchanged, but its policy statement released hawkish signals, and institutions still expect a possible rate hike in December; the bond market is under pressure, with long-end US Treasuries and investment-grade bond ETFs seeing outflows. Overseas markets saw a major black swan event: the Brazilian election result deviated sharply from market expectations, the MSCI Brazil index plunged about 20%, and retail investors aggressively bought the dip in Brazilian ETFs and local ADRs against the trend, with short positions rapidly covered. In the derivatives market, retail options trading remains at elevated levels, while call options in the technology sector have declined. The report also observes market credit risk through a CDS credit spread model; credit conditions for some companies in aviation, consumer, and telecom sectors have weakened marginally, warranting vigilance against potential risks. Overall, retail investors chose to stand on the sidelines during earnings season and are no longer blindly speculating on AI-themed trades. Although AI industry fundamentals still have support, high capital expenditure, elevated interest rates, and differences in earnings delivery have become the core variables weighing on the market. Going forward, it is necessary to continue tracking the realization of cloud vendors' capital expenditure, the direction of Federal Reserve policy, and the volatility risks from spillover of emerging-market events.