Even after last year’s bull market and indexes that have doubled since 2009, most Americans still don’t trust the stock market. A recent survey of 1000 households by Bankrate found that 73% of Americans are more interested in safe, low-yield investments (including savings accounts) than in buying stocks, reports Allison Ross at Bankrate.com.
While you would expect some reticence after the financial crisis, it seems to have lasted longer than after previous crashes. “A lot of individual investors got burned twice and as a result they swore off investing in equities,” said Bankrate.com chief financial analyst Greg McBride, who argues that inflation risk does more damage to portfolios than volatility in equity markets.
“People would rather have pathetically low interest rates in something safe rather than (what they see as) the roller-coaster returns on the stock market,” says Duke University management professor Rick Larrick.
Top value fund managers are ready for the small cap bear market to be done
During the bull market, small caps haven't been performing well, but some believe that could be about to change. Breach Inlet Founder and Portfolio Manager Chris Colvin and Gradient Investments President Michael Binger both expect small caps to take off. Q1 2020 hedge fund letters, conferences and more However, not everyone is convinced. BTIG strategist Read More
While most analysts will concede that there could be a tactical correction in the coming months, McBride and Larrick echo the overall bullish sentiment among financial advisors. For people who think stock prices have gotten too high and that there is a disconnect between last year’s PE multiple expansion and the growth of the real economy, it’s less surprising that their optimism doesn’t resonate.
Buying stocks: survey may simply be measuring market access
The survey didn’t find much difference between older and younger individual investors, but people with full-time jobs were much more likely to be interested in buying stocks than those who were un- or underemployed. That’s not surprising, but it does suggest that the unpopularity of the stock market could also be linked to the weak wage growth that has been so characteristic of this recovery. It would be more interesting to break down the survey according to either income or to the amount that individuals have invested in all asset classes, because unpopularity could just be a proxy for lack of access.
Fewer new investors makes a bubble less likely
For people worried about a market top, this unpopularity is a double-edged sword. On the one hand, weak inflows from new investors means that stock prices have less support and multiple expansion can’t continue (as seems to already be the case). On the other hand, when a market top does eventually come, it shouldn’t be as severe if you don’t have the hot money of new investors buying over-hyped stocks and then selling into a bear market at the first sign of trouble. Unpopularity on Main Street could help prevent an expensive equities market from turning into a bubble.