Following a 100% rally in the S&P 500 from the lows of March 2020, individual investors are taking their feet off the accelerator as they anticipate muted returns for the rest of the year. In addition, many have pared back their risk appetites for stocks and cryptocurrencies. Their primary sources of concern, however, have more to do with fiscal and monetary policy than the recent spread of the delta variant of COVID-19, which is threatening to slow the economic recovery. Those were among the latest findings of the most recent survey of our 1.5 million daily newsletter readers.
In a sign of slowing enthusiasm from earlier in the year, the majority of respondents believe that stock market gains will be more muted for the remainder of 2021. In March 2021, 48% of investors expected returns of 5% or more over the next 12 months. Yet as of August, only 30% continue to expect the same level of returns. Another 30% think the market will decline from here or remain flat. That’s a less bullish sentiment than any of the previous surveys we have conducted this year.
Given those tempered expectations, the majority of respondents say they don’t plan to increase the amount they will invest. While 54% say they don’t plan to make changes to their contributions, more than a third of respondents say they plan to invest less, and only 19% say they plan to invest more—a drop from 24% in May.
Investment Choices Have Changed
What our readers are choosing to invest more in has also changed along with their risk appetite.
Monetary and Fiscal Policy Concerns
While investors are no more concerned about the stock market than they were in May and March, with around 43% saying they are “somewhat worried,” government spending and inflation emerged as their top concerns in August. Worries about the economic impacts of the resurgence of COVID-19 fell, despite the rise in new cases around the world and the return of mask mandates and travel restrictions. Concerns about cyber-attacks on businesses and governments also came ahead of COVID-19 with 39% believing it could impact the performance of their investments over the next 12 months, while worries that the Fed will taper its $120 billion in monthly bond purchases came in last.
Where’s the Bubble?
Recent record highs for the major U.S. stock indexes and a surge in commodity prices are not catching the attention of our readers when they think about over-inflated asset prices. Instead, more readers believe the U.S. housing market could be in a bubble. While 60% say the stock market is overvalued, only 29% think it’s a bubble, versus 38% who think U.S. home prices are over-inflated.
Another 35% think Bitcoin is in a bubble. The price of Bitcoin has risen 54% so far this year, while the S&P 500 is up 18% year-to-date. U.S. home prices have also risen 13.2% on average, according to the National Association of Realtors (NAR).
Sticking with Stocks
Our U.S. readers are mostly stock investors, and they have barely changed their tune in the past 16 months we’ve conducted our surveys. Large-cap technology stocks, dividend-paying blue chips and the occasional meme-stock remained the most popular. The results of our August survey reveal readers have largely stuck to their favorites, with Apple, Amazon and Microsoft remaining their top holdings. Tesla, which was among the most popular stocks held by our readers, fell out of the top 10 in August, along with Exxon-Mobil. Chipmaker Nvidia and Facebook, however, climbed into the top 10.
While our readers’ risk appetites may have waned in the past two months, the majority of respondents said if they had an extra $10,000, they would put it into stocks or ETFs, ahead of savings, paying down debt or purchasing more cryptocurrencies.
So while they may be more cautious going forward, most still believe stocks represent the best possibility for earning returns on their investments.
Data by Amanda Morelli/Adrian Nesta.