Investor Movement Index (IMX) for August 2016

Talk about a turn-around!

After retail traders stepped back slightly from the stock market in July, they raised their exposure in a big way during August, snapping up beaten-down dividend plays even while continuing to clear the deck of some well-known stocks that recently hit long-term highs.

Retail traders tracked by TD Ameritrade increased their stock market exposure by the largest amount ever in August, according to the Investor Movement Index®, or the IMXSM. The IMX jumped 12.15% to 5.26, up from 4.69 in July and its highest level since July 2015. A lot of this reflected the market’s low volatility, which had the effect of increasing the relative volatility of many widely held positions, including Apple Inc. AAPL and Facebook Inc FB.

Though volatility did play a role, let’s not discount a trend we’ve been seeing for several months that seems to be picking up steam as autumn approaches and the kids head back to school. Retail investors seem to be increasingly showing interest in dividend-paying issuers that have come under pressure, recently, possibly sensing opportunity there. This may be driven in part by stubbornly low yields on income investments like Treasury bonds, which can sometimes make the yields of dividend-paying stocks look downright generous by comparison.

Take two companies that saw increased retail trader buying during August: Ford Motor Company F and Pfizer Inc. PFE. Ford share prices, down about 9% from a year ago, carry a yield of 4.76%. Pfizer share prices are up about 7% from a year ago, a weaker performance than the S&P 500 Index (SPX), and carry a yield of 3.45%. Compare those yields to the 10-year Treasury yield, stuck below 1.6% throughout August, and it becomes obvious why dividend stocks might look attractive to many retail traders. Other beaten-down yield names that drew retail trader interest in August included Bristol-Myers Squibb Co BMY and Wells Fargo & Co. WFC.

Now last month, I praised retail traders for being a cautious bunch and not letting recent record highs in the stock market let them get carried away. Don’t think that just because IMX rose sharply in August, retail traders abandoned that philosophy, because it just isn’t true. Some of the rise, as I said, is related more to relative volatility, but the IMX report also shows that retail traders continued to demonstrate prudence. How? By stepping out of some popular names that have had big recent runs.

In the accompanying video, you’ll get my take on the August IMX reading, and I’ll tell you about which sectors were hot and cold as well as some of the stocks retail traders bought and sold during the month. I’ll give you a hint: A major retail company with a big Internet presence was among the stocks that saw net selling from retail traders after strong earnings. Nope, it wasn’t Amazon.com, Inc. AMZN. Watch the video to find out.

Remember, this sophisticated index is a tool that lets you see what hundreds of thousands of actual traders were doing in August across all markets. Retail traders continued to focus on getting the most out of their stock purchases in August, choosing to buy some companies whose shares had come under pressure and exiting some high-priced names after a big rally. Will this prudent (my new favorite word) trend continue in September? Come back and see.

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