Retail investors are reluctant to buy stocks again following this year's bear market decline, JPMorgan says

• Retail investors are reluctant to step back into the stock market amid the current bear decline.
• That's according to JPMorgan, which observed subdued equity flows, low NYSE margin accounts, and depressed call option buying.
• "The younger cohorts' deleveraging has advanced by so much that all the previous post pandemic increase has been unwound already," JPMorgan said.

The retail trading frenzy that gripped the stock market amid the COVID-19 pandemic in 2020 and 2021 is officially over, according to JPMorgan.

The bank said in a Wednesday note that retail investors are reluctant to step back into the market following this year's 20% bear market decline, as lower stock prices have led to debilitating losses and depressed sentiment.

JPMorgan's analysis was derived from the observations that equity fund flows are nowhere near what they were in 2020 and 2021, call option buying volume is depressed, NYSE margin accounts have fallen considerably, and a basket of retail-favorite individual stocks have not caught a bid amid the ongoing stock market sell-off.

The hesitation to jump back into stocks is seen across both older and younger cohorts of retail traders, according to the bank, as older investors tend to gravitate towards traditional equity ETFs and mutual funds, while younger retail investors lean more towards individual stocks and options.

Margin accounts have seen the biggest fall, with NYSE margin account data showing the leverage metric fall to levels last seen in September 2019. Call option buying activity for transactions with less than 10 contracts, which typically represents retail trading activity, is at its lowest level since December 2019.

"In other words, the younger cohorts' deleveraging has advanced by so much that all the previous post pandemic increase has been unwound already," JPMorgan said.

And there seems to be little change in retail activity so far in July, the bank said, which means everyday investors are not believing the 10% rally the S&P 500 has experienced from its late-June low of about 3,600.

Retail investors aren't alone in not buying the current rally, as Fairlead Strategies' Katie Stockton warned investors that the current rally is nothing more than a fast and furious bear market surge that is likely to fade.

But for retail investors that are saving for the long-term, today's bear market will likely represent a solid buying opportunity if history is any guide.