The sell-off sparked by the Evergrande crisis has shaken retail investors' buy-the-dip mentality, JPMorgan says

• Retail investors' confidence in the buy-the-dip trade was jolted after Monday's stock market sell-off, JPMorgan said in a note.
• The Evergrande debt crisis sparked $11 billion in outflows from equity ETFs on Monday.
• "The outflow happened on a down day and is thus inconsistent with the buy-the-dip behavior," JPMorgan said.
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The Evergrande-induced stock market decline earlier this week jolted confidence in the buy-the-dip trade, JPMorgan said in a note on Wednesday.

The bank highlighted $11 billion in outflows from equity ETFs on Monday, which happened on a day where stocks were down as much as 3%. "The outflow happened on a down day and is thus inconsistent with the buy-the-dip behavior," JPMorgan said.

Monday's sharp outflow was one of the largest this year when excluding days with quarter-end option and futures expiry dates, according to the bank. And while momentum traders could have played a significant role in the near 5% stock market correction due to a break-down in certain indicators, retail investors also played a role, JPMorgan said.

Retail investors' net inflows into equities peaked at around $16 billion in July, before falling to $15 billion in August and declining even further so far in September, JPMorgan said, citing internal research.

"We would need to see more significant inflows into equity ETFs today and the following days to be able to say that retail investors' impulse into equities and their previous buy-the-dip behavior remains intact," the note said.

Confidence among retail investors likely surged in recent days given the solid rebound in stocks since Monday's decline. Despite a decisive breakdown below the technical 50-day moving average earlier in the week, the S&P 500 recaptured that level on Thursday, jumping more than 1%. Now the index is now less than 1% away from reclaiming all of the losses stemming from Monday's decline.