Barclays: Retail buyers likely drove the latest leg of the rally

Investing.com -- Retail investors appear to be the primary force behind the latest surge in U.S. equities, according to Barclays (LON:BARC), as institutional participation remains subdued. 

“Retail buyers likely drove the latest leg of the rally,” the firm wrote, pointing to more than $50 billion in retail flows into global equities over the past month, most of it targeting developed markets.

Barclays stated that long-only equity exposure remains “below long-term medians,” and hedge fund re-risking has been “modest,” leaving retail investors as the primary drivers of upside momentum. 

While overall retail flows continued to favor bonds, with over $120 billion in monthly inflows, Barclays noted that “re-risking seems to be the priority for small investors” amid resilient economic data, improving sentiment ahead of second-quarter earnings, and expectations for Federal Reserve rate cuts.

The bank adds that retail enthusiasm is also visible in rising Equity Euphoria Indicators (EEI), “driven in particular by the ‘volatility up/spot up’ dynamic across single stocks,” a pattern Barclays described as “a hallmark of upside chasing.” 

The firm highlighted that intra-day return patterns during the recent “Liberation Day” rally showed “strong ‘buy-the-dip’ behavior.”

Systematic strategies may further support risk assets in the near term, with Volatility Control allocations having climbed to around 55%, up from 20% year-to-date lows. 

“They are likely to reach ~70% in a benign scenario,” Barclays said, though it warned that upcoming catalysts, including the Aug. 1 Federal Open Market Committee meeting and tariff deadlines, could inject volatility and reverse flows.

Discretionary managers increased exposure to Industrials in the second quarter, while cutting back on Tech and Big Tech. At the same time, Barclays observed that “median short interest fell from decade high levels, another sign of risk appetites improving.”