Today the market went into the red for 2018 with no “Santa Rally” anticipated in the next few days. How do investors feel about this volatile market and what will make them feel comfortable to invest in the market again?
Spectrem’s most reliable predictor of how investors are viewing the economy and the markets is our monthly Millionaire Investor Confidence Index (SMICI)®. And what is it telling us? Investors don’t want to invest in the market until it is less volatile. And what will make the market less volatile? Probably more investment by both institutional and private investors. So a true chicken or the egg scenario.
The Spectrem Millionaire Investor Confidence Index reported a 7 at the end of November/beginning of December. The highest rating ever was a 26 in March and April of 2004. In August of this year, the SMICI reported a 20. There are some underlying factors influencing how investors are reacting. Compared to a year ago, wealthy investors rated their feeling about the Economy at a -4.80 which is down 23.2 points from a year ago. They also indicate that their feeling about their Household Assets is down 13.6 points from a year ago. Similarly, feelings about Household Income are down 6.80 points and Company Health is also down 18.8 points. Kind of a gloomy scenario.
When asked their opinions about what is impacting their attitudes about their Economic Outlook, 26% of Millionaires identified International Problems. These issues range from the trade negotiations with China to the Brexit issues in England and the “yellow jackets” in France and Belgium. There is also concern regarding the Immigration and Refugee issues.
Tied, however, with the International Problems is the Political Environment. While investors were slow to react to the turnover of the House to the Democrats, as rhetoric between the President and the Democrats becomes increasingly rough, the belief that any types of true governance in the next two years seems unlikely.
Despite the frustration felt by investors due to the market volatility and the increasingly negative nature of the cable news pundits, the real attitudes about how they intend to invest are not as bad as they could be. For example, in March of 2009, the bottom of the Great Recession, the likelihood that investors would keep their assets in cash rated a 67.2. In contrast, this month investors indicate their likelihood to keep their assets in cash scored a 24.8. This is lower than those who intend to invest in Stocks 27.6 and Stock Mutual Funds 38.0. Therefore, investors don’t intend to stay out of the markets indefinitely, they are merely looking for the market to become less volatile.
Until the political environment becomes less divisive, the market is likely to remain volatile. Does this mean that the market will continue its crazy track until 2020? It’s hard to tell. But unlike the past, investors are looking for a way to re-enter the market. Perhaps resolution of some of the International Problems plaguing the market, such as a breakthrough in trade negotiations, will help to lessen volatility.
Unfortunately, there are multiple non-economic issues influencing stocks today. Corporations and investors have little control over these issues. Yet stopping the volatility will increase the investment of investors…and increased investing will lessen volatility. Chicken? Egg? Good luck.
© 2018 Spectrem Group