Nearly half ‘very worried’ about impact of D.C. ‘political climate’ on markets
Controlling emotions: 9 in 10 investors say they ‘keep their cool’ in periods of volatility
SAN FRANCISCO--(BUSINESS WIRE)--U.S. investors remain broadly positive about the U.S. investment
climate, according to the Wells Fargo/Gallup Investor and Retirement
Optimism Index.
The index score in the second quarter is 103, with investors’ 12-month
outlook for economic growth, U.S. unemployment and their personal
finances remaining strong. Although the index is a bit lower than the
117 recorded in November 2017, this is the sixth straight quarter it has
registered 100 or higher. This follows a 16-year period when investor
optimism was consistently below that level.
The full range of the index over its 22-year history extends from –81 in
February 2009 to 152 in January 2000. (See the note at end about changes
to survey methods and index trends this quarter.)
“While investors are enjoying current market conditions and the strength
of the economy, they appear to be sleeping with one eye open. They are
optimistic, but they also have clear concerns about what factors could
impact markets and drive volatility,” said Erik Davidson, chief
investment officer for Wells
Fargo Private Bank.
The second quarter Investor and Retirement Optimism survey was conducted
May 7–14, 2018. This was three months after the stock market’s sharp
drop in February, and shortly after the monthly U.S. labor report was
released showing unemployment falling to 3.9 percent in April, the
lowest since late 2000. It dropped further to 3.8 percent in May.
Nevertheless, the majority of investors reported feeling “somewhat
concerned” (44 percent) or “very concerned” (11 percent) about recent
stock market volatility. Fewer than half were “not too” (40 percent) or
“not at all” (5 percent) concerned.
“There is an age old maxim that ‘the markets climb a wall of worry.’
Therefore, the fact that investors continue to harbor concerns for the
market going forward is actually cause for comfort from a contrarian
perspective,” Davidson explained.
Top three risks to the stock markets
While overall investor optimism is strong and 41 percent of investors
say the market will go up in value in 2018, investors worry certain
economic and political matters could disrupt the market. Eight in 10
investors (79 percent) say they are somewhat or very worried about
possible data breaches from cyberattacks on business or government
affecting the market. A similar percentage worry about the political
climate in Washington (78 percent) and the federal budget deficit (77
percent). Further, close to half, 48 percent, are very worried about the
possible impact of the political climate, the highest level of extreme
worry for any of the items tested.
Seven in 10 are “somewhat” or “very worried” that trade relations with
China (71 percent) could impact the markets, while close to six in 10
worry to this degree about U.S. relations with Russia (59 percent),
relations between the U.S. and North Korea (56 percent) and the
economy’s performance (55 percent). The poll was conducted prior to the
U.S.-North Korea nuclear talks in June.
“There is a lot going on in the world these days, and the results tell
me that while investors are happy for today, they are worried about the
future,” said Davidson.
Investors in wait, watch and see mode
Most U.S. investors expect stock market volatility to continue
throughout 2018 (81 percent) rather than settle down before year’s end
(19 percent). Further, 65 percent say the “worst is ahead of us” in
terms of volatility, with 35 percent saying the “worst is behind us.” At
least six in 10 agree that volatility has caused them to pay closer
attention to their investments (62 percent) as well as to the market as
a whole (59 percent).
Close to half of investors (46 percent) “somewhat” or “strongly agree”
that market volatility is causing them to leave some of their money in
cash now, rather than invest it. However, fewer are changing their
existing investments as a result. Seventeen percent say they sold stocks
to protect from further losses, while somewhat more, 25 percent, say
they purchased stocks to benefit from lower prices. One in five
investors (20 percent) were rattled enough to shift some investments
into lower-risk instruments such as bonds or a stable value fund. The
most common actions investors report taking are consulting with a
financial advisor (42 percent) and rebalancing their portfolio (35
percent).
Retired investors were more likely than non-retired investors to report
taking most of the actions tested and are particularly likely to consult
with an advisor (59 percent of retirees versus 32 percent of
non-retirees), to have rebalanced their portfolio (45 percent versus 30
percent), and to have sold stocks to prevent further losses (23 percent
versus 13 percent).
Investors are twice as likely to believe the stock market will go up in
value over the next year (41 percent) than believe it will go down in
value (22 percent), with 37 percent saying it will stay the same. Those
who say markets will gain expect growth to be solid, predicting a median
rate of return over the next year of 8 percent. Those who say the market
will go down in value have a more extreme expectation, predicting an
average market loss of 12 percent.
“Given favorable economic tailwinds and healthy levels of investor
skepticism, which keep valuations relatively reasonable, we believe
stocks have more room to run in 2018,” said Davidson.
Most investors handling volatility well
The poll also offers several signs that investors are keeping this
year’s volatility in perspective:
-
Three in four investors (74 percent) say the market volatility seen
this year is normal and was to be expected; 26 percent consider it a
sign the market is in trouble.
-
Nearly one in five, 19 percent, say that this year’s volatility
“caught them off guard.”
-
The majority, 74 percent, disagree that volatility has made their life
stressful; 26 percent say it has.
-
The majority of investors, 78 percent, say they are very or somewhat
confident about investing in the stock market as a way to build wealth
for retirement. The remaining 22 percent are very or somewhat doubtful.
-
Looking further into the future, investors predict that the median
rate of return over the next 20 years will be 10 percent, similar to
the long-term average for the S&P 500 when not accounting for inflation1.
Female investors (62 percent) are more likely than male investors (48
percent) to be “somewhat” or “very concerned” about recent volatility in
the stock market. Perhaps because of this, women (73 percent) are less
likely than men (83 percent) to say they are confident in the stock
market as a good way to build retirement wealth.
More than a quarter of investors (27 percent) agree that this year’s
volatility has resulted in a significant decline in their investments.
By contrast, just 18 percent say volatility has caused them to cut back
on their day-to-day spending.
“Investors reasonably expect increased market turbulence going forward.
Nevertheless, in their own minds they are ready for it and have every
intention to ride it out, recognizing the wisdom of a long-term approach
to investing,” said Davidson.
Few admit to emotional investing
The poll gave respondents three opportunities to indicate whether they
mainly tend to respond emotionally or rationally when investing, but
none yielded more than 5 percent admitting to being emotional.
Asked directly whether they are more of a rational or an emotional
investor, 96 percent consider themselves rational and just 4 percent
emotional. In a separate question, 95 percent identify with the
statement that they maintain their cool when investing even when the
market is volatile; just 5 percent say they tend to panic when the
market is falling fast. Similarly, 95 percent say they are in the market
for the long haul regardless of the ups and downs; 5 percent say they
are ready to jump out of the market at any time if it falls too far or
too quickly.
Asked about their reaction to two possible emotions for investing, six
in 10 investors (59 percent) say the fear of losing a lot of money has
more influence on their risk tolerance and investment choices; 41
percent say the desire to earn a lot of money motivates them more.
Female investors (65 percent) are more likely than male investors (52
percent) to say their investment choices are driven mainly by fear of
losing money. Men (48 percent) are more likely than women (35 percent)
to be driven by the desire to earn a lot of money.
Investors unfamiliar with Bitcoin, consider it risky
Bitcoin may have visibility with investors, but it has a long way to go
in building familiarity and credibility, not to mention buyers. In an
initial measurement of investor interest in bitcoin by Wells
Fargo/Gallup, conducted before the news that cryptocurrencies were
hacked, fewer than three in 10 investors (29 percent) say they have some
familiarity with bitcoin or other cryptocurrencies. Another 67 percent
say they have heard of bitcoin or other online currencies but don’t know
much about them. Five percent say they had never heard of them.
Only 2 percent of investors who had heard of bitcoin and other
cryptocurrencies say they currently own bitcoin. Of the rest, less than
one-half of 1 percent say they plan to buy bitcoin in the near future;
26 percent say they are intrigued by it but won’t be buying it anytime
soon. Fully 72 percent say they have no interest in ever buying bitcoin.
Three in four investors who had heard of the currency rated bitcoin a
“very risky” investment, with most of the rest calling it somewhat risky
(23 percent). Only 2 percent say it is not too risky.
Methodology note
Starting with this quarter’s poll, the Wells Fargo/Gallup Investor and
Retirement Optimism Index is being conducted online using the Gallup
Panel, a proprietary probability-based panel of U.S. adults, recruited
via random-digit-dial (RDD) methodology. The poll was previously
conducted by telephone, using random digit dial technology. Because of
expected differences in the way respondents answer questions online
versus on the telephone, the index trends have been adjusted using
statistical modeling, so they are comparable to the new web-panel
results. The modeling was based on a comparison of Gallup Panel test
data from the 2018 first quarter investor poll to parallel telephone
poll data.
About the Wells Fargo/Gallup Investor and Retirement Optimism Index
The results of this Wells Fargo/Gallup Investor and Retirement Optimism
Index are based on a Gallup Panel web study completed by 1,921 U.S.
investors, aged 18 and older, from May 7 to 14, 2018. The Gallup Panel
is a probability-based longitudinal panel of U.S. adults who Gallup
selects using random-digit-dial phone interviews that cover landline and
cellphones. Gallup also uses address-based sampling methods to recruit
Panel members. The Gallup Panel is not an opt-in panel. The sample for
this study was weighted to be demographically representative of the U.S.
adult population, using the most recent Current Population Survey
figures. For results based on this sample, one can say that the maximum
margin of sampling error is ±5.4 percentage points at the 95 percent
confidence level. Margins of error are higher for subsamples. In
addition to sampling error, question wording and practical difficulties
in conducting surveys can introduce error and bias into the findings of
public opinion polls.
For this study, the American investor is defined as an adult in a
household with total savings and investments of $10,000 or more. About
two in five U.S. households have at least $10,000 in savings and
investments. The sample consists of 62 percent non-retirees and 38
percent retirees. Of total respondents, 43 percent reported annual
incomes of less than $90,000; 57 percent reported $90,000 or more. The
Wells Fargo/Gallup Investor and Retirement Index is an enhanced version
of Gallup’s Index of Investor Optimism, which provides the historical
trend data. The median age of the non-retired investor is 48 and the
retiree is 69.
The Index of Investor Optimism has an adjusted baseline score of 100
from when it was established in October 1996. It peaked at +152 in
January 2000, at the height of the dot-com boom, and hit a low of -81 in
February 2009.
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $1.9 trillion in assets. Wells Fargo’s
vision is to satisfy our customers’ financial needs and help them
succeed financially. Founded in 1852 and headquartered in San Francisco,
Wells Fargo provides banking, insurance, investments, mortgage, and
consumer and commercial finance through more than 8,500 locations,
13,000 ATMs, the internet (wellsfargo.com) and mobile banking, and has
offices in 42 countries and territories to support customers who conduct
business in the global economy. With approximately 271,000 team members,
Wells Fargo serves one in three households in the United States. Wells
Fargo & Company was ranked No. 25 on Fortune’s 2017 rankings of
America’s largest corporations. News, insights and perspectives from
Wells Fargo are also available at Wells Fargo Stories.
About Gallup
Gallup delivers analytics and advice to help leaders and organizations
solve their most pressing problems. Combining more
than 80 years of experience with its global reach, Gallup knows more
about the attitudes and behaviors of employees, customers, students and
citizens than any other organization in the world.
1 https://dqydj.com/sp-500-historical-return-calculator/
