While it is very difficult to accurately predict the stock market, as discussed in my article “Should You Wait To Buy The Dip? Why This Strategy May Cost You,” investor confidence can be used as an indicator to assess how the market may move. If investors are confident in the market, then people are more likely to continue to invest, driving prices up. If they are not confident, they are likely to sell their investments, causing the market to fall.
Charles Schwab recently released their 2021 First Quarter Retail Client Sentiment Report, for which they collected survey data from their retail clients (nonprofessional investors) about their views on the market in mid-January 2021. Despite the stock market being at an all-time high, Schwab found that investor confidence was at the highest point since they started tracking it in 2013. Of those surveyed, 48% were bullish about the market, compared to 35% who were bearish. While this doesn’t break the 50% mark, it’s a marked improvement from the previous quarter, when only 36% were bullish and 44% were bearish. Considering that the market continued to rise over this period, you can see that, as mentioned before, investors are not particularly good at guessing how the stock market will perform. Nonetheless, this suggests that people now believe the economy is recovering and that the market will continue to go up.
Despite this bullishness, fewer people planned to put more money into the stock market in the next three months than had invested during the past three months. This may be because they don’t have any additional money to invest if they have invested recently, or because they just want to hold on to their current investments to see how they perform. The surveyed investors did express a number of concerns about factors that may influence the market, chief among them being the continuing effects of Covid-19, politics, and the feeling that the market is overdue for a significant correction.
However, Schwab still found that 54% of investors believe that now is a good time to invest. I find it interesting that this number is higher than those who were bullish about the market, suggesting that even some people who are not as confident in the market still believe that it’s a good time to invest. As I believe that the best investing strategy is to invest regularly on a monthly or yearly basis rather than trying to time the market (read more here), this makes sense, as no time is really a bad time to invest in the long run.