Retail investors pull back, but household stock demand remains strong: Goldman Sachs

Retail investors have sharply reduced their stock trading activity in recent months, but broader household demand for U.S. equities remains strong enough to help support the market despite increased selling pressure and a growing supply of shares, according to Goldman Sachs.

Retail trading volumes have declined 20% since the summer and 45% since late 2025, Goldman Sachs strategist Ben Snider said in an Oct. 23 research report. Individual investors recently accounted for about 9% of total U.S. equity trading volume, down from 15% late last year and near the lowest level since 2020.

The slowdown comes as hedge funds have reduced their market exposure following a turbulent week for popular institutional holdings. Goldman said its hedge fund long-short basket fell 4.2% on Thursday, one of its steepest daily declines in the past decade. Hedge fund gross leverage also dropped sharply, although it remains above the 90th percentile of its five-year historical range.

The divergence between declining speculative activity and sustained household investment demand is significant for the stock market. Households are the largest owners of U.S. equities, making their willingness to invest an important source of support for share prices. Their continued purchases could become especially important in 2027 as Goldman anticipates the largest increase in net public equity supply since 2000.

Consumer pressures weigh on retail trading

Goldman attributed much of the slowdown in individual stock trading to weak consumer confidence, higher energy prices and pressure on household finances.

The firm's economists expect inflation-adjusted personal income to grow just 1% in 2026. Consumer spending has remained resilient partly because households have reduced their savings, with the personal saving rate falling to about 4.1%.

Retail investors also have expanded their activity in other speculative markets, including leveraged exchange-traded funds, equity options and prediction markets.

Monthly prediction market trading volume reached $78 billion in September, compared with $5 billion a year earlier. Retail options trading has nearly doubled over the past year, according to data cited by Goldman.

Nevertheless, Snider said the growth of these alternatives is relatively small compared with overall retail stock trading. The decline in equity activity appears more closely associated with deteriorating consumer sentiment and reduced savings.

Goldman's speculative trading indicator, which tracks activity in penny stocks, unprofitable companies and highly valued shares, has also declined from its recent highs. The measure remains at the 80th percentile of its historical range since 1995, suggesting speculative activity is still elevated despite the pullback.

Households remain powerful source of stock demand

The reduction in short-term trading contrasts with substantial purchases by households through brokerage accounts, mutual funds and retirement plans.

Federal Reserve data indicate that U.S. households purchased $840 billion of domestic equities during the first half of 2026, according to Goldman. Meanwhile, U.S. equity mutual funds and ETFs have attracted about $350 billion in net inflows this year.

Households directly own 42% of the U.S. corporate equity market and control a majority of shares when indirect holdings through investment funds and retirement accounts are included.

Goldman estimates that households own approximately $65 trillion in equity assets, including $41 trillion in directly held stocks, $10 trillion through mutual funds, $10 trillion in retirement accounts and $5 trillion through ETFs. The figures are rounded.

By comparison, self-directed brokerage accounts hold about $12 trillion in equity assets, representing just 18% of total household exposure.

Stock ownership is also heavily concentrated among wealthy Americans. The richest 10% of households own 87% of household equity assets, including 47% held by the wealthiest 1%.

That concentration means the investment decisions of affluent households can have an outsized effect on stock demand. Goldman said wealth generated by large public offerings has likely supported purchases by wealthy investors in recent months.

Rising share supply raises stakes for 2027

Household buying has become increasingly important as corporations shift from being net purchasers of shares to net issuers.

U.S. public and private companies issued a combined $175 billion in equities on a net basis during the first half of 2026, according to Federal Reserve data cited in the report.

Goldman expects the net supply of publicly traded U.S. shares to increase next year by the largest amount since 2000, including shares becoming available following the expiration of restrictions on insider sales.

The firm's outlook assumes that household demand will remain healthy in 2027, supported by a relatively stable labor market and modest declines in interest rates.

Lower yields on cash and bonds generally make stocks more attractive, while rising household wealth and improving employment conditions have historically encouraged additional equity investment.

Snider also identified a longer-term shift toward stock ownership through retirement accounts. Assets in 401(k) plans now represent 21% of the U.S. retirement market, up from 13% in 1995. Equity allocations within those plans have increased, particularly among younger participants.

Household equity allocations have reached a record 55% of financial assets, reflecting both strong demand and the appreciation of stock prices. Goldman said those allocations have historically been closely associated with equity valuations.

The bank nevertheless cautioned that changes in interest rates and potential economic disruption from artificial intelligence could affect household investment behavior.

Goldman maintains bullish S&P 500 outlook

Despite the recent volatility, Goldman continues to forecast gains for the broader stock market.

The firm projects the S&P 500 (SP500) will reach 8,000 by the end of 2026 and 8,700 over the following 12 months. Those targets represent potential gains of approximately 4% and 14%, respectively, from the index level of 7,663 used in the report.

Goldman expects S&P 500 (SP500) earnings per share to reach $375 in 2026, $415 in 2027 and $460 in 2028.

The outlook underscores the importance of household demand as a source of market support. While speculative retail traders have become less active, longer-term investors continue to direct substantial capital into equities.

Whether that demand persists will depend heavily on employment, household wealth and interest rates, particularly as companies prepare to bring more shares to market.