Retail investors are selling their falling meme stocks and fleeing back to safe names like Apple, according to Vanda Research

NYSE trader worried
A trader reacts as he works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 18, 2020. Lucas Jackson/Reuters
  • Retail investors are abandoning meme stocks as they continue to fall from their recent peak, according to a note from Vanda Research.
  • Instead of buying speculative stocks, retail investors are buying large cap companies like Apple.
  • “While large cap tech stocks have seen decent inflows, speculative tech has seen the lowest retail demand in over a year,” the note said.
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The ongoing decline in meme stocks like GameStop and AMC Entertainment has led to capitulation from retail investors.

Despite their diamond-hands mentality, or holding on for dear life, retail investors have been selling shares of highly speculative stocks that are often tied to unprofitable businesses, according to a Wednesday note from Vanda Research.

Since the middle of June, retail investors have been buying on average $1.3 billion worth of stocks per day, well above the pre-COVID average. But unlike the first quarter of 2021, when retail flows were going to speculative growth stocks, retail investors are now purchasing underperforming sectors like financials, energy, and reopening stocks.

“In other words, the pick-up in flows has more to do with the classic buy-the-dip behavior than a FOMO-inspired spending spree,” Vanda Research explained.

Digging deeper into the stock purchases by retail investors shows that “risk appetite is nowhere near Q1,” when stocks like GameStop exploded higher amid an epic short-squeeze rally.

“While large cap tech stocks have seen decent inflows, speculative tech has seen the lowest retail demand in over a year,” the note said.

Instead of buying speculative stocks, retail investors are beginning to put their money in safer S&P large cap companies. Stocks like Apple have seen big inflows from retail investors, according to Vanda.

Apple traded to record highs on Tuesday, while shares of GameStop and AMC Entertainment are down 48% and 46% from their June peak, respectively.

“With the exception of Virgin Galactic, which has been the second most bought stock after Apple this week, all other thematic baskets have seen a decrease in retail demand,” Vanda said. Those speculative baskets of stocks that are seeing declining interest from retail investors include clean energy, crypto, and cannabis.

“All things considered, we continue to think that retail flows into large cap S&P stocks will continue to gain traction in the coming weeks,” Vanda concluded.

Chart of falling meme stocks