Data suggest retail investors have gone into 'hibernation' and the pause could put crypto stocks and reopening trades at risk, Vanda Research says

• Retail investors are holding back from using their $1,400 stimulus checks to buy stocks, says data firm VandaTrack.
• The average retail investor has underperformed the S&P 500 by 11% since mid-February, prompting a "hibernation".
• So-called re-opening names and crypto proxies may be at risk during the slower buying period.

Retail investors have been slowing their purchases of US equities and the pause could prompt a pullback in cryptocurrency proxies and in shares of companies set to benefit from the economy's rebound from the pandemic, says one research firm.

Millions of Americans have been receiving $1,400 checks from the US government this month in a bid to help people who've been hurt financially by the COVID-19 health crisis. While checks have been rolling in, the average retail investor has underperformed the S&P 500 Index by 11% since mid-February, said VandaTrack in a note sent to Insider on Wednesday. The firm monitors retail investing activity in 9,000 individual stocks and ETFs in the US.

"This is probably why stimulus checks haven't been invested in the equity market," wrote Viraj Patel, global macro strategist at Vanda Research, VandaTrack's parent. He said the "anemic purchases" that VandaTrack logged on Monday and Tuesday "suggest that retail investors have gone into hibernation."

The recent decline in stock purchases looks much like the one spurred in September and through October when retail investors lost about 14% as tech shares slid after the stock splits at Apple and Tesla.

"We fear retail investors may have entered a similar healing process, nullifying the impact of stimulus checks," Patel said.

He said most at risk from the most recent "hiatus" in purchases are cryptocurrency proxies and re-opening names, or shares of companies that should benefit from businesses and consumers restarting their activities as more people receive COVID-19 vaccinations. Roughly 130 million people in the US have already been vaccinated, according to data from the Centers for Disease Control and Prevention.

"In the aftermath of the last drawdown, the sectors with the highest trailing inflows experienced the largest drop in daily purchases," said Patel. "Crypto stocks were on the losing side back then while reopening names thrived during the hibernation period."

With flows into crypto and reopening names "sitting at multi-month highs, the risk of further positioning unwinds is large," he said. Meanwhile, "space and cannabis stocks could see a gradual build-up in retail flows."

Cryptocurrency miner Riot Blockchain and online travel website Expedia have been among the most sought-after stocks by retail investors, according to VandaTrack.