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Did Investor Optimism Predict Recent Market Downturn?

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Investor optimism reached its highest level in more than two years, although investors are split on whether the market benefits the average American.

Investor optimism reached its highest level in more than two years, although investors are split on whether the market benefits the average American, according to a new survey.

The Wells Fargo/Gallup Investor and Retirement Optimism Index rose to +43, up 12 points since March and the highest level in two-and-a-half years. However, two-thirds of investors say they foresee a market correction this year.

And yet, more than half (54%) said that they have not “personally” benefited much from the stock market’s rise. Respondents were almost evenly divided about whether or not the stock market’s rise benefitted the “average” American.

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“Investors are ambivalent about whether the rising stock market benefits them. History shows that investors who save and invest regularly based on a plan do benefit from rising stock market values, but at this point, most average investors don’t see a strong connection between the markets and their financial well being,” John Papadopulos, president of Wells Fargo Retirement, said in a statement.

By far, a politically divided federal government is the biggest obstacle facing investors with 73% saying this issue is hurting the investment climate in the U.S. a lot.

According to 73% of respondents, they will have to pay higher federal taxes during retirement, which will make it more difficult for them to live comfortably. More than half (60%) are either “somewhat worried” or “extremely worried” that their taxes will increase over the next year.

Since this Well Fargo/Gallup survey, where the average investor reported being optimistic, the stock markets have taken a turn, which is unsurprisingly, according to Gallup.

“Average investors often seem to be the last to jump on the bandwagon on the way up, and tend to be last to get off as the markets correct,” according to Gallup. “That is, by the time there is a general consensus that the markets are improving, they are often peaking. And, by the time the need to get out of the markets is obvious, many savvy investors have already left.”


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