From mid-December through January, ongoing concerns over the debt crisis in Europe and the effect it might have on the fragile U.S. economy had many retail investors reluctant to engage in the markets, said Fred Tomczyk, chief executive of TD Ameritrade.
Stocks have been on the upswing for months, but retail investors are typically slower to get back into the market after a period of weakness than are big institutional traders.
"But the retail investor is now coming back to the market in a noticeable way," said Tomczyk.
Actions by the European Central Bank to ensure liquidity in its banking system, along with a raft of improving U.S. economic indicators that included housing, employment, and consumer confidence data, have helped the S&P 500 rally more than 9 percent this year.
"The market performance has sort of dragged individual investors back in, but we need to see continued improvement in the markets to keep up the momentum," said Richard Repetto, an analyst at Sandler O'Neill + Partners.
Tomczyk echoed that sentiment and said the rising price of oil was a growing concern among traders.
TD Ameritrade is the top U.S. discount broker by trading volume and is often seen as a proxy for the mood of Main Street investors. It releases its trading figures for February later this month, as do rivals Charles Schwab Corp and E*Trade Financial.
David Chiaverini, an analyst at BMO Capital Markets, said that based on his checks with private brokers, he expects that daily average revenue trades (DARTs)- a closely watched industry measure - at the discount brokers rose between 10 and 15 percent in February from January.
"We believe the recent strong market performance coupled with the return to lower volatility levels has retail investors starting to wade back into the markets, and this should benefit discount broker trading commissions," he said in a research note.
BMO said it now expect DARTs to rise by 10 percent in the first quarter over the fourth quarter from an earlier estimate of a 3 percent rise.
Last year, trading fees made up over 40 percent of TD Ameritrade's revenues. They made up nearly 30 percent of revenues at E*Trade, and around 20 percent at Schwab.
BMO raised its estimates for earnings per share in the current quarter for TD Ameritrade by 2 cents to 27 cents, and by a penny for E*Trade and Schwab to 6 cents and 14 cents, respectively.
Repetto said he too expects DARTs at the discount brokerages to have risen 10 to 15 percent over January.
Mutual fund flows also suggest individual investors were more active in February.
U.S. equity funds, not including ETFs, which tend to be used more by institutional investors than retail investors, had $2.59 billion in inflows from the start of the month to February 22, according to Lipper, a unit of Thomson Reuters.
That compares to outflows of $1.7 billion in January and outflows of $34.1 billion in December.
(Reporting By John McCrank; Editing by Walden Siew, Dave Zimmerman)
By John McCrank