Many investors hire financial advisors for the purpose of taking advantage of the United States stock market, investing in companies with growth potential and limiting losses as much as possible.
But almost all investors who allocate assets for use in stock market trading pay attention to how the market is moving, perhaps not day-to-day, but over a month’s time or a year’s time.
And it is not unusual for those same investors to wonder what in the world is going on with the stock market.
The stock market is as reactionary as it is predictive. It moves up or down based on dozens of outside influences, including corporate earnings reports, federally released job figures, statements from U.S. and foreign leaders, and hunches. It can be complicated and confusing and very, very important to the economy of the United States.
Advisors can alleviate confusion for their clients by providing explanations if requested, but even the best advisors might have trouble explaining all of the reactions the stock market has.
In Spectrem’s study Evolving Investor Attitudes and Behaviors, affluent investors were asked to place on a 100-point scale their reaction to this statement: “Are Stock Market Results Understandable?” A rating of 100 means all stock market movement makes sense to that investor, and a rating of 0 means stock market movements make no sense at all to an investor.
The overall response to the question in 2020 was 53.76. That’s a smidge above the midpoint, and indicates that there is general confusion about how the market reacts to those previously mentioned outside influences.
That 2020 rating, however, is higher than the rating on an identical question in 2019, when the overall rating was on the other side of the midpoint at 47.74. Considering all of the stock market movements that occurred in 2019, it is interesting to note that the 2020 response, which considered the 2019 stock market, was higher than the results from the 2019 question, which had investors consider the steadier 2018 stock market results.
The investors who responded to the study were segmented by their knowledge of finances and investing, and it makes sense that the very knowledgeable investors had a higher rating of understanding. But it is not much higher. In 2020, the very knowledgeable investors rated their understanding of the stock market at 56.16, and that is not much higher than the overall rating of 53.76.
Among those investors who admit to not being very knowledgeable, the understanding of stock market results was at 51.30 in 2020, but was only at 39.87 in 2019.
Do investors need to understand the stock market to invest in it? Would they be more willing to allocate funds to that endeavor if they better understood the manner in which the market responds to outside influences?
Keywords: stock market, investors, advisors, Spectrem, evolving
*This research is part of your Spectrem subscription.