You Can Thank Everyday Investors for the Continued Bull Market

While the ongoing AI rally and a strong second-quarter earnings season have recently propelled the major indices to new all-time highs, stocks might owe average joes a debt of gratitude for buoying the bull market.

That's because this year, when volatility has spiked — whether on news of tariff deadlines, geopolitical conflict, weak macroeconomic data or creeping inflation — retail investors have repeatedly bought the dip hand over fist.

That trend has been so well-pronounced that it's now confounding Wall Street pros.

How everyday investors are driving stocks higher

Financier J.P. Morgan once said that "in a bear market, stocks return to their rightful owners." The implication is that when the market cycle passes its peak and begins to turn bearish, negative sentiment sparks fear-induced selloffs that result in retail investors dumping shares — often at a loss — and institutional or accredited investors buying them at steep discounts.

Historically, that has been the case. When the markets experience heightened volatility, precedent says everyday investors run for the hills. But in 2025, that hasn't been happening.

"It's confusing institutional investors completely at this point," Mark Hackett, chief market strategist at Nationwide Investment Management Group, told MarketWatch, adding that retail investors have been conditioned to buy the dip by taking advantage of price declines with the expectation of an eventual rebound.

Some of that may be attributed to the increase in Americans owning stocks. According to Gallup, 62% of U.S. adults hold shares, up from 52% in 2016.

This year, they've been exceptionally active. In April, when the major indices were cliff-diving towards corrections, retail investors injected $7.32 billion into U.S. equities resulting in a dramatic V-shaped recovery. The world's largest index fund — the Vanguard S&P 500 ETF (VOO) — saw inflows of $3.25 billion that month alone.

More recently, in late July, a subpar jobs report and a looming tariff deadline sparked another (albeit less severe) sell-off. The S&P 500 fell 2.38% from July 28 to Aug. 1. Again, everyday investors stepped in, bought the dip and sparked another V-shaped recovery. Since that Aug. 1 bottom, the index is now up 2.68%.

Hackett said looking back to April and May, institutions were "completely on the sidelines." Yet retail investors were aggressively buying pullbacks.

"It's worked so many times, at this point, the retail investor has fueled this sense of inevitability about recoveries," Hackett told MarketWatch.

Stock valuations could point to market trouble

Whether these recoveries are part of a pattern shielding the market from an overdue correction remains to be seen. But many analysts are in agreement that stock valuations are pushing their upper limits.

According to data analytics firm VettaFi, the summary of market valuations was at its highest level in history at the end of last month, with a current average that is more than three standard deviations above its historical mean.

So while retail investors may be keeping the current bull market — which began in October 2022 — afloat, they could also be propping up stocks that are due for declines as part of the natural market cycle.

Take, for example, AI platform developer Palantir (PLTR), which is up nearly 144% year to date and 1,892.66% since its October 2020 IPO. The stock's eye-catching gains have led to a remarkably high price-to-earnings (P/E) ratio — a measure of what investors are willing to pay in exchange for one dollar of a company's earnings.

On a trailing 12-month (TTM) basis, Palantir's P/E ratio is 623.20, meaning that over the past year, investors have paid $623.20 for every $1 the company earned. Meanwhile, the S&P 500's TTM P/E ratio of 29.49 is more than 64% higher than its historical average of 17.96.

That does not, however, suggest a market correction is imminent.

"As we've frequently pointed out, these indicators aren't useful as short-term signals of market direction. Periods of over- and under-valuation can last for many years," Jennifer Nash, economic and market research analyst at VettaFi, wrote in a note. "But they can play a role in framing longer-term expectations of investment returns."

Despite elevated valuations, retail investors — at least for now — are being rewarded for their bullishness. The S&P 500 is up nearly 29% since its year-to-date low in April.

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