The Proof is in the Numbers

5/1/2020

The American stock market is trying to recover from losses suffered in March and April, as institutional investors grasp at any good economic news or innovative updates regarding a coronavirus vaccine and battle perceptions that the economy will need years to recover rather than weeks or months.

But stock market numbers are often considered an irrational measure of current economic conditions. They are often motored by those institutional investors who feed mutual fund interests. Individual investors are less likely to have a huge impact on the stock market, in part because individual investors do not always agree in how to approach current economic conditions.
But Spectrem provides a measure of how individual investors react, and the measure in April showed that the current conditions have rocked the optimism of even the most upbeat citizens.
For 16 years, Spectrem has been measuring the confidence and outlook of investors in regard to investing and personal finance in its monthly Spectrem Affluent Investor Confidence Index®. While the end result numbers change every month, historically there have been few wild swings in investor confidence, as optimists tend to stay optimistic and pessimists stay pessimistic.
Then came the coronavirus pandemic, and the need for citizens to shelter-in-place and quarantine. The commerce of the world slowed down considerably, the American stock market plunged, and investors had to rethink their positions regarding the future of the economy and their own household finances.
As you would expect, those confidence and outlook numbers took a huge hit. What matters is how history shows what the recovery rate on those numbers might be. 
Let’s start with today’s situation. For the month of April, the Spectrem Affluent Investor Confidence Index® fell from 1 to -12, a 13-point drop. That index, which considers investors with at least $500,000 of investable assets, has been on a steady decline since January, falling from 8 to 5 to 1 before taking the big nosedive into negative territory in April. The last time that index was that low was in November of 2012. However, in seven of the 12 months of 2019, when the stock market was consistently rubbing up against the record levels while occasionally diving in response to some global crisis, the SAICI sat in negative territory. Just not as negative as it was in April of 2020.
Is it even possible to think back to when you were considering your investment options in 2019? Were you more optimistic about the future or pessimistic and seeing a downturn from the continual bull market?  
When the SAICI was measuring investor confidence after the Great Recession, that index number remained negative from January of 2008 to February of 2011. It took those three years for the confidence of those investors to fully recover to where they had a positive feeling about the direction of the stock market and the investing environment.
The Spectrem Millionaire Investor Confidence Index®, measuring the confidence of those with at least $1 million in investable assets, fell from 7 to -8 in April. The Millionaires are often more confident investors, perhaps because they have more resources to weather storms, or they have more confidence in the advice they receive from advisors. In fact, the SMICI for January 2020 was 15, one of the highest ratings in months. 
Like the SAICI, the SMICI registered negative numbers for about three years in response to the Great Recession, pulling out of the negative range a couple of months before the SAICI did. 
A second component of the Spectrem Affluent investor Confidence Indices is the Household Outlook, a numerical analysis of how investors feel current economic conditions are impacting their household finances. The Outlook asks investors to consider their personal household finances on four topics: household assets, household income, company health and the economy. Many investors are likely worried about how the company they work for (or worked for) is going to come out of the coronavirus slump, just as they worry about the economy in general.  Some may have their household income impacted, and household assets reflects the value of investments and portfolios, which are all taking a hit. 
Compiling the measurements of the four factors, the Outlook in April registered a rating of -24.50, the first negative total since February of 2013 and the lowest such rating since February of 2009. 
Almost all economists believe there will be a recovery, although there is wide disagreement on the timing of that recovery. But it is imperative that you let your financial advisor know how you feel about the timing of a recovery, whether you think matters will get worse before they get better, and how well-suited your investments are to weather either economic climate change.