Shares of discount brokers are gaining the most since 2003 compared with the Standard & Poor’s 500 Index, a sign that small investors are joining the four-year bull market even after U.S. stocks suffered their biggest losses in six months.

Charles Schwab Corp., TD Ameritrade Holding Corp. and E*Trade Financial Corp. have climbed 38 percent on average in 2013, beating the S&P 500 by 23 percentage points and eclipsing returns in financial shares from Goldman Sachs Group Inc. to Bank of America Corp., according to data compiled by Bloomberg.

Bulls say a rally in brokers that serve private investors means individuals are preparing to embrace shares after they pulled almost $400 billion from stock funds in the last four years. Bears say buying by individuals who missed the rally shows gains are close to peaking as another pool of untapped demand gets absorbed.

“It says something about an improvement of confidence among our biggest sector of the economy, retail investors and households,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees more than $340 billion, said in a phone interview. “When the retail investor finally gets more confident about the future, flows follow.”

The S&P 500 rose last week, snapping two consecutive losses, after American companies hired more employees than forecast in May. The gauge added 0.8 percent to 1,643.38, taking this year’s increase to 15 percent and the advance since March 2009 to 143 percent.

The index fell 3.6 percent between May 21 and June 5, the steepest such decline since November, as investors speculated the Federal Reserve will reduce the bond purchases central to stimulating the economy. The S&P 500 was little changed at 1,642.89 as of 10:27 a.m. New York time today. Schwab rose 0.2 percent, while TD Ameritrade was down less than 0.1 percent and E*Trade gained 0.1 percent.

Schwab, the San Francisco-based brokerage with 6.1 million retail accounts as of March 31, has climbed 40 percent in 2013, including a 24 percent rally since May 1 that is the fifth-biggest in the S&P 500, while Omaha, Neb.-based TD Ameritrade is up 43 percent.

By contrast, Goldman Sachs gained 30 percent in 2013 amid concerns regulations in the Dodd-Frank Act to curb risk-taking by financial institutions will reduce profits. Bank of America is up 15 percent and the KBW Bank Index of 24 lenders’ stocks rallied 20 percent this year.

‘Market Improving’

“We have had a huge run-up in the stock market this year, and when you have the appearance of the economy getting better and the stock market improving you’re going to get more people wanting to come in,” said Jerome Dodson, president of San Francisco-based Parnassus Investments, which oversees about $7.3 billion, in a June 5 phone interview. “It tends to push the market higher.” He owns Schwab shares.