Amid talks of pulling troops out of Syria and extended trade and tariff battles with China, the Dow Jones Industrial Average on Friday, April 6, dropped by 1,000 points during midday trading, recapturing some of the lost value by the end of the day.
Was it the Syria talk? Was it the trade war with China? Was it rumors Scott Pruitt would be pushed out as administrator of the Environmental Protection Agency? Was it Greek Easter? Why did the stock market react so strongly in a negative direction on the first Friday in April?
The current political environment and the proactive nature of Donald Trump’s administration have produced severe ups and downs in the stock market, even as numbers continue to rise over time.
Investing in the stock market is a form of gambling; investors are wagering that corporations will be profitable and the value of the stock will travel upward on a regular basis. But there are so many outside forces that can impact stock prices - outside forces investors cannot anticipate – that stock market investing is just not a sure thing.
That being said, the stock market has been on a consistent rise since the end of the Great Recession 10 years ago, continuing whether the president is a Democrat or a Republican.
While some stock market analysts think the bull market will continue, others claim that a sizable correction is on the way. Either way, no one seems to know for sure what is going to happen.
Apparently, stock market investors know what they are getting into.
Spectrem’s new study on investor opinions regarding the hot topics of the day show that investors understand the mercurial nature of the stock market. In Politics, Taxes and Investors’ Changing Attitudes, investors with a net worth between $100,000 and $25 million (not including primary residence) were asked “on a scale of 0 to 100, where 100 indicates rational, how rational are the current stock market results?"
The overall answer from all investors was 43.16, an indication that investors realize the questionable rationality of the current stock market levels.
What do your investors think about the rational nature of the stock market in the spring of 2018? Do they care that some observers believe stocks are overvalued? Are they cautious with their investment these days, or do they want to jump on board for the ride?
The Spectrem study segments investors based on several different factors (like age, wealth level, gender, and occupation), but for the purposes of the question regarding the rational nature of today’s stock market prices, segmentation barely mattered.
Age, wealth level and gender had little effect on the overall rating of the rational nature of the stock market. In fact, men and woman were nearly identical in their rating, 43.24 for women and 43.11 for men.
The most stark difference was among investors based on political affiliation, with Republicans rating the market rational at 52.36 and Democrats at 35.04. Still, a rating of 52 does not seem to indicate strong belief in the rational nature of today’s stock market.
Among investors segmented by occupation, Business Owners had the highest rating for the rational of the stock market today at 45.16, while Educators had the lowest rating at 40.24. Still, there is not a great deal of difference in those numbers, another indication that all investors see why the question was asked in the first place.
Top Takeaways for Advisors
Advisors cannot impact stock market numbers directly, but they can serve as a buffer against either overly positive or overly negative outlook among investors. Do advisors hype the rise of stock market prices, or do they moderate investor enthusiasm by pointing to the roller-coaster nature of prices over the past two months?
Advisors should consider bringing up the Spectrem study with investors to take a pulse of their clients regarding the uncertain nature of stock market investing.
©2018 Spectrem Group