Stock market turmoil may not scare retail investors: ‘We’re not seeing investors respond in the usual way’

Surveys and buying data suggest that despite all the bearish dips so far this year, the stock market may not frighten many retail investors.

A quarter (26%) of people said the stock market is the best place to spend money that they won’t need to tap for a decade, according to a new Bankrate.com survey.

However, their top investment choice was real estate – in the form of home ownership and/or investing in the sector itself – with 29% saying it was the best way to invest for the long term. Bankert noted that real estate has been the top investment choice for survey respondents for three of the past four years.

But the percentage of people who prefer the stock market this year is noteworthy because it’s up from 16% a year ago. Moreover, by the time people were talking to pollsters about their preferred investment options in mid-June, the S&P 500 had veered into bear market territory, a technical decline of 20% from its recent high.

Greg McBride, chief financial analyst at Bankrate, said people seem to be keeping the lessons of the pandemic-induced stock market plunge and the subsequent return in 2020 on their minds.

“We’re not seeing investors respond in the usual way” by selling and looking to exit in response to the recent downturns, McBride said. “And that is a good thing. This feeling and behavior this year is more consistent with the long view.”

McBride noted that in a survey conducted earlier this year, more than half (56%) said they had deliberately made no different investment decisions this year despite market volatility.

Bankrate’s latest data suggests that for people who don’t like stocks as an investment option, the chance of extreme fluctuations in value is the main reason behind this.

The survey aligns with other recent readings on investor sentiment.

Two in 10 Americans (18%) see stocks and mutual funds as the best long-term investment, according to a Gallup poll in May. This was second only to real estate, which 45% of people considered the best long-term investment.

Meanwhile, more than half of Charles Schwab SCHW
Clients said they had a bearish view of the stock market during the second quarter, according to a survey in May. However, 55% of them said they did not make adjustments to their risk exposure, and only 9% said they withdraw money from their wallet.

Earlier this week, Schwab’s second-quarter earnings indicated that clients opened 1 million new brokerage accounts in the second quarter.

However, there are a lot of notable people who have a gloomy view of the near future of the market and advise caution. Among them is Thomas Peterffy, founder and president of Interactive Brokers IBKRAnd the
Which provides brokerage services to individual and institutional investors.

“Personally, I am bearish and I think the market will see new lows,” said Peterffy, one of the pioneers in computerized stock trading. In his view, there are still significant challenges ahead, starting with high inflation that will last longer than the Fed expects.

In this context, Peterfi said a wise move for a retail investor is to avoid overexposure to stocks and temporarily keep cash on the sidelines where he can at least earn more interest in a time of rising prices.

On Wednesday, the Dow Jones Industrial Average DJIAAnd the
Standard & Poor’s 500 SPX
The Nasdaq Composite Company
Everyone made gains, building on a sharp rebound on Tuesday. The question remains whether it’s just a market rally with more room to stumble, or something different? On Thursday, indicators opened lower.

Retail investors averaged $768 million in daily purchases of stocks and ETF shares, according to a Wednesday note from Vanda Research.

The researchers note that this is below the year-to-date average daily buying of $1.23 billion – but they note that there is likely to be a seasonal summer slump in trading activity, not a sign of a white flag. Buying stocks in one measure could fall another 8% and “remain within historical ranges without much cause for concern,” the researchers wrote.

Vanda data shows that even in this challenging trading year, the average daily buying of $1.23 billion so far exceeds the $1.16 billion that investors averaged last year.

During the first quarter of 2021, which included a stock craze surrounding companies such as GameStop GME
and AMC AMCAnd the
Vanda data showed that retail investors had an average of $1.32 billion in daily stock and ETF purchases.

What all of this means for a person’s wallet in the short and long term is an open question. For example, immediate pain now may turn into gains over the next 12 months, Bernstein analysts say. Investment experts say taking a step back is one step further, and long-term buying and holding over years is the best strategy.

Hopes for a rise in stock prices next half year have risen to a six-week high, according to the latest reading of the Continuing Sentiment Barometer from the American Association of Retail Investors.

But don’t get carried away. Nearly 27% of investors anticipating increases in stock prices are still below the survey’s historical average of 38% for bullish sentiment. Similarly, the data showed that 46.5% of investors expecting prices to fall is still well above the historical average of 30.5% of bearish mood.

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