Retail investors significantly missed out on this V-shaped rebound in US stocks, but this may be accumulating momentum for the next phase of the market.
The S&amp;P 500 Index closed at a record high on Wednesday, reaching 7,022.95 points, marking its fifth record high of the year.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7af359f9-cf4b-4da5-93f8-96eda8695906.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7af359f9-cf4b-4da5-93f8-96eda8695906.png"/>
However, this rally has not seen broad participation from retail investors—they sold at the market bottom and remained bearish even after the rebound began. Tom Lee, a prominent bull on Wall Street and Head of Research at Fundstrat, believes that this group of waiting retail investors will become the key fuel driving the index higher.
As previously reported by Wallstreetcn, JPMorgan's Retail Radar Report indicates that retail investor behavior patterns have undergone a fundamental shift: evolving from &#34;buying on dips&#34; to &#34;selling on rallies,&#34; with defensive tendencies continuously strengthening. This shift implies that a large amount of capital has yet to enter the market; once sentiment reverses, the potential demand for additional purchases cannot be overlooked.
<h2>Retail Investors Miss Out: From &#34;Buying on Dips&#34; to &#34;Selling on Rallies&#34;</h2>
The outbreak of conflict between the US and Iran broke the long-standing &#34;buy on every dip&#34; inertia among US retail investors that had persisted for over a year. As previously noted by Wallstreetcn, JPMorgan's mid-March Retail Radar Report showed &#34;persistent weakness&#34; among retail groups—a signal extremely rare since the bank began tracking.
In early April, news of a ceasefire triggered a market rebound, but retail investors did not buy; instead, they chose to reduce positions. According to JPMorgan's report at the time, retail behavior patterns had shifted from &#34;buying on dips&#34; to &#34;selling on rallies,&#34; showing clear skepticism about the sustainability of this rebound.
Tom Lee explained this in his &#34;Macro Minute&#34; video released on Wednesday: Since 1929, US stocks have often exhibited V-shaped recoveries, but many non-institutional investors lack awareness of this pattern and habitually expect rebounds to take longer. Consequently, while hedge funds were actively buying at low levels, retail investors accelerated their selling, hoarded cash, and remained &#34;stubbornly bearish&#34; even after the market began reversing, ultimately missing out on this rally.
<h2>Tom Lee's Four Logic Points: Why the Market Has Bottomed</h2>
Tom Lee outlined four reasons explaining why the March 30 low of 6,344 points constitutes the bottom for this S&amp;P 500 cycle.
First is the &#34;war fog&#34; effect. He pointed out that, as historical patterns during World War II show, stock markets often bottom out at the initial stages of conflict rather than waiting for clarity.
Second, markets tend to bottom on bad news rather than waiting for good news. Investors who wait for positive signals to enter often miss the optimal timing.
Third, &#34;no one rings the bell at the bottom.&#34; Tom Lee emphasized that there was no obvious catalyst for the March 30 low; the market simply stopped reacting to bad news, which itself is a signal of a bottom.
Fourth, wartime spending has a positive stimulating effect on the economy, and earnings expectations have been revised upward accordingly.
&#34;All of this is typical of the 'most hated V-shaped rebound',&#34; Tom Lee stated.
<h2>Who Will Lead the Next Phase?</h2>
Fundstrat believes that sectors that have performed well since the war broke out will continue to lead the subsequent recovery.
Tom Lee specifically highlighted technology stocks—especially the Mag 7—as well as industrial and financial stocks as preferred targets at market lows.
Scott Rubner from Citadel Securities corroborated signs of retail return from another angle.
In an independent report, he noted that retail participation has begun to rise over the past few trading days, evidenced by increased trading activity in individual stocks rather than the previous dominance of ETFs and indices. Rubner believes that some of the prior retail hesitation may have stemmed from tax needs following a strong 2025 stock market performance; as tax season pressures ease, capital is expected to flow back into the market.
<h2>Missed-Out Capital Could Become an Upward Catalyst</h2>
In summary, the large-scale retail absence has created a potential positive feedback mechanism in market structure: the more waiting capital exists, the stronger the buying power becomes once sentiment turns bullish.
The S&amp;P 500 has hit new highs five times this year, yet retail investors remain largely defensive. If this capital eventually returns to the market, the &#34;most hated V-shaped rebound&#34; described by Tom Lee could gain fresh momentum.

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Retail investors sold at the US stock market bottom and remained bearish even after the rebound began. Tom Lee believes this sets the stage for future gains: once sentiment shifts, the large pool of sidelined capital will convert into buying momentum. Currently, technology, industrial, and financial sectors are leading the rally, and with tax season ending, signs of retail capital returning are emerging. This missed-out capital could become a key force driving further US stock gains

- Retail investors have largely missed the recent V-shaped rebound in the U.S. stock market, which may generate momentum for the next phase of market activity.  
- Despite the S&P 500 reaching a record high of 7022.95 points, retail investors have maintained a bearish outlook, selling at market lows and reducing exposure during the rebound.  
- Analysts, including Tom Lee, suggest that the returning retail investors could significantly impact market dynamics, as their previous defensive strategies may shift, fueling further gains.

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US Stocks Hit New Highs, Retail Investors Miss Out en masse: Tom Lee Says Next Rally Will Be Led by Them