Stock market turbulence may not scare retail investors: “We’re not seeing investors respond the way they normally do”

For all its declines so far this year, the stock market may not scare off many retail investors, surveys and buying data suggest.

A quarter (26%) of people said the stock market is the best place to store money they won’t need to use 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 optimal way to invest for the long term. Real estate has been the top investment choice for respondents for three of the last four years, Bankrate noted.

But the proportion of people who favor the stock market this year is notable because it is up from 16% a year ago. Also, when people were talking to pollsters about preferred investment options in mid-June, the S&P 500 had drifted toward bear Market Territory, technically a 20% retracement from a recent high.

People seem to be saving the lessons of the pandemic-induced stock market crash and subsequent revival in 2020 at the forefront of their minds, said Greg McBride, chief financial analyst at Bankrate.

“We’re not seeing investors respond in the way that they normally have,” selling and eyeing exits in response to recent downturns, McBride said. “And that’s a good thing. This sentiment and behavior this year is much more consistent with the long-term outlook.”

in a survey earlier this year, More than half of people (56%) said they would deliberately not make any different investment decisions this year despite market volatility, McBride said.

The latest data from Bankrate shows that for people who don’t like stocks as an investment option, the possibility of sudden changes in value are the main reason why.

The survey lines up with other recent readings on investor sentiment.

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

Meanwhile, more than half of Charles Schwab SCHW,
-0.28%
clients said they had a bearish view of the stock market during the second quarter, according to a May report poll. However, 55% said they were not adjusting their risk exposure and only 9% said they were withdrawing cash from their portfolio.

Earlier this week, Schwab’s second quarter earnings noted that customers opened 1 million new brokerage accounts in the second bedroom.

Still, there are many prominent people who take a dim view of the immediate future of the market and advise caution. That includes Thomas Peterffy, founder and president of Interactive Brokers IBKR,
-0.60%,
which offers brokerage services to retail and institutional investors.

“I am personally bearish and I think the market will see new lows,” said Peterffy, who is one of the pioneers of computerized stock trading. In his opinion, there are still important challenges ahead, starting with high inflation that will continue for longer than the Fed forecasts.

In this context, Peterffy said a smart move for a retail investor is to avoid too much exposure to stocks and keep cash temporarily on the sidelines where it can at least earn more interest at a time of rising rates.

On Wednesday, the Dow Jones Industrial Average DJIA,
+0.15%,
S&P 500SPX,
+0.63%
and the Nasdaq Composite COMP,
+1.04%
all done Profits, building on a strong rebound on Tuesday. The question remains if it is just a bear market rally with more room to fall, or something different? On Thursday, the landmarks opened below.

Retail investors have been averaging $768 million in daily purchases of stocks and exchange-traded fund shares, according to a Wednesday note from Vanda Research.

That’s down from a year-to-date daily purchase average of $1.23 billion, the researchers noted, but they noted that it could likely be a seasonal summer lull in trading activity, not the signal of a white flag. Buying shares for a measure could still fall another 8% “and still remain within historical ranges without presenting a cause for concern,” the researchers wrote.

Even in this tough business year, the average daily purchase of $1.23 billion far exceeds the $1.16 billion investors averaged last year, data from Vanda shows.

During the first quarter of 2021, which covered the meme stock frenzy nearby companies such as GameStop GME,
-3.36%
and AMC AMC,
-2.90%,
Retail investors had an average of $1.32 billion in daily purchases of stocks and ETFs, data from Vanda showed.

What all this means for a person’s portfolio in the short and long term is an open question. For example, immediate pain now can be turned into gains in the next 12 months, Bernstein analysts say. Take a step back even more and the buy and hold long term for years is the best strategy, investment experts say.

Hopes for a rise in share prices in the next half year rose to a six-week high, according to the latest reading from a continuous sentiment indicator of the American Association of Individual Investors.

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

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