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More U.S. investors expect market downturns: Investopedia

Yahoo Finance’s Alexis Christoforous and Caleb Silver, Editor-in-Chief at Investopedia, discuss Investopedia’s latest survey on investor sentiment.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back. We know that investors have remained bullish on stocks, despite all the noise. The resurgence of the virus, political uncertainty around the election. Even after last week's deadly riots at the Capitol. Investopedia's Editor-in-Chief Caleb Silver is joining us now to share the results of their latest investor sentiment survey. And Caleb, I guess it's no big surprise to find the majority of your readers say the state of our union is their number 1 concern right now.

CALEB SILVER: Right, and we surveyed them as soon as this went down at the Capitol last week, and after the senatorial elections, and after President-elect Biden was certified in the electoral college. So this is very recent. Still very bullish.

But now, the state of the union is their biggest concern, with about 60% of our readers citing that as their number 1 concern. Not their number 1 concern about the markets, just their number 1 concern overall. And I think a lot of us are feeling that way, having seen what we saw. But also, the tension around our country right now as we prepare to enter with a new administration. That's got them very much-- in the front of their minds.

At the same time, they're still very bullish, or generally very bullish, about what 2021 will bring. But there's a little trepidation. And we've seen more people start to pull back their forecast for how much they think the market's going to rise, and more people actually thinking we may see a dip here in the next 12 months.

ALEXIS CHRISTOFOROUS: Did they get specific? How much of a dip are they talking about? Because we just spoke to two strategists who were saying, you know what? We could see a drop of at least 10% here in the first quarter before we bounce back.

CALEB SILVER: Sure. And I have a lot of respect for Tom Lydon and what they do at ETF Trends. They have a very good handle on what's happening. And we saw that as well.

We surveyed the readers, and about 25% of them say that we could see a dip of anywhere between 0% and 25%. Now, only about 10% said we'd see a dip of about 10% to 25% by the end of the year, which would be a massive correction and a bear market. Most of them think we're going to see some 0% to 10% dips here over the next few months and going forward, even into the second half of the year.

That said, they aren't making many moves with their portfolio. Because they learned in 2020 if they started selling when the market started crashing, they missed the best days of the market's recovery, and missed a lot of the rebound from late March-on. So they aren't making a lot of moves with their portfolio.

Generally bullish. Generally leading towards large US cap stocks, particularly in technology, particularly in health care, and not wanting to make too many adjustments. But having this feeling in the back of their mind that we may get a dip here.

ALEXIS CHRISTOFOROUS: They're not-- it's encouraging, though, to see they're not making any hasty moves. You've got some smart readers there, Caleb. But what's their appetite for risk? Are they taking on a little more risk? And is the US market still their top choice when it comes to equities?

CALEB SILVER: Sure. Our readers love the home cooking, and they love the US stocks, especially the large caps. And a lot of our readers are age 45 and older, living around various parts of the country. They like the stability of blue chips and the dividend-paying stocks, but they're very loyal to US large-cap stocks, which gave them great returns in 2020, great returns in 2019, incidentally.

The market has turned a little bit, as we know, in the past month or two, Alexis, with the recovery stocks, the cyclical stocks, even the financials and the energy stocks making a rebound as investors bet on a recovery. But our readers are generally pretty entrenched with the large US cap stocks, and they want to stay with them. They do feel, in general, most of them that were kind of in this Goldilocks area-- they don't want to take on too much risk.

They don't want to get too hot and they don't want to get too un-risky. They want to kind stay in the middle, with about 40% saying they're going to keep things where they are. And that means tilted towards the equity market, towards the large caps. And they have got a few stocks that they're very favorable towards.

ALEXIS CHRISTOFOROUS: Yeah, I want to talk about that. Pretty levelheaded of them, though. Right, Caleb? Let's talk about some of the favorite individual stocks of Investopedia readers.

CALEB SILVER: Yeah. So we asked them if there was one stock and one stock only you could hold for all of 2021, what would it be? Tesla, of course.

The number 1 stock. Such a popular stock. Up only 700% in 2020. so you can see why people like that one.

But it was also Apple. About 14% of our readers said they would hold Apple for the entire year. And Amazon. About 11% chose Amazon. So those big 3.

Again, these are three of the biggest stocks in the S&P 500. The heaviest of the S&P 500 in almost every index fund that tracks the S&P 500, and the biggest stocks contained in some ETFs. So they're going with the large cap, the big size, popular story stocks. And those are their favorites, and they've served them well. Those haven't done that great to begin in 2021, but we're only about 14 days in.

ALEXIS CHRISTOFOROUS: Yeah. I know you said the state of the union was their number 1 concern, your readers' number 1 concern. But when it comes to the market, and maybe when it comes to fundamentals and things that can truly affect the market, what are they most concerned about?

CALEB SILVER: It's COVID, and it has been all along. I spoke with you in December. It was COVID back then.

We had this nasty resurgence in the virus. Since then, we've had nothing but record cases and record fatalities on a daily basis. They know that that's the overhang holding back the economy from a true recovery.

When you even look at the Labor Department report from Friday, Alexis, we had big job losses. They're still covering-- coming from the services sector of the economy, which hasn't rebounded. So COVID, the spread of COVID and the inability to contain it, and the delay in vaccination roll-outs is really what's bothering them the most.

Because they know that unlocks the economy. And that's been slower than expected, as has the spread of the virus has been much more aggressive than expected. So those two things are-- hand-in-hand, are what's got everybody worried about market returns going forward.

The civil disobedience and the civil unrest is a general feeling of fear that they have. Not affecting their portfolio per se, or how they want to treat their portfolio. It's COVID that has them scared the most.

ALEXIS CHRISTOFOROUS: Yeah, good work getting that survey out to your readers so quickly after all the political unrest of last week. Caleb Silver, Editor-in-Chief at Investopedia. Be well.

CALEB SILVER: Thank you.