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RPT-Turbulent markets test U.S. retail investors as coronavirus fears rage

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NEW YORK, March 6 (Reuters) - Coronavirus-fueled market declines are testing the faith of individual investors after last year’s outsized stock rally.

U.S. investors pulled $20.3 billion out of equity funds in the week that ended Wednesday, completing the largest two-week retreat from the stock market since December 2018, according to Lipper data.

The outflows come after a bruising two-week stretch that saw the benchmark S&P 500 index confirm a correction, yields on the U.S. 10-year Treasury fall below 1% for the first time in history, and oil prices tumble. The S&P 500 is now down around 8% for the year-to-date, including Friday’s 1.7% drop.

Todd Morgan, chairman of Los Angeles-based Bel Air Investment Advisors, said that this week two clients called to liquidate all of their stock holdings. That compares to receiving “virtually none” such calls last year, when the S&P 500 soared over 30%.

“The more days we have down in a row the more panic calls we get and it grows exponentially,” said Morgan, whose firm caters to high-net-worth clients. “There’s the rare bird who thinks that there’s an opportunity, but we tell them that it’s too early.”

Other indicators - and some advisers - point to relative investor calm.

A survey by the American Association of Individual Investors conducted during the week ending Wednesday showed bullish sentiment ticked up 8.3 percentage points to 38.7%, slightly higher than the historical average of 38%. Bearish sentiment was at 39.6%, up 0.5 percentage point over the last week and well above its historical average of 30.5%.

The level of neutral sentiment - which stood at 21.6% - is unusually low, the AAII said. Historically, such readings have been followed by below-average and below-median returns for the S&P 500 index over the following six- and 12-month periods, the association said.

“Retail investors especially have been stubbornly bullish,” said Randy Frederick, vice president for trading and derivatives at the Schwab Center for Financial Research. “Any time I’ve been at a conference and tried to talk about risks I’ve had clients come up to me and say ‘I don’t want to hear it.’”

Frederick said he has been cautioning clients to focus on their long-term goals and not make any rash decisions based on the market’s movements this week.

“We use the rule of thumb to wait until you have two good solid up days constructively until you start to do any bargain hunting, and we just haven’t seen that yet,” he said.

Retail investors appear to be caught off-guard by the severity of the pullback in the U.S. stock market and are “not using this perhaps as a big opportunity to buy the dip as maybe we have seen in the past,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.

Those who are buying are focusing on either names like Apple and Microsoft “that people trust for a longer term,” he said, or “in the Costcos, Cloroxes of the world that may benefit in this type of environment,” he said.

Costco Wholesale Corp and Clorox Co are among the stocks to post gains this week, rising 10.7% and 8.7%, respectively, in part due to signs that consumers are stocking up on household supplies and disinfectants in fears of virus-imposed quarantine measures. (Reporting by David Randall and April Joyner; Additional reporting by Terence Gabriel; Editing by Ira Iosebashvili and Leslie Adler)