Bullish Beyond Belief Despite Bubbles Everywhere

Despite the usual anxiety investors fear when markets keep topping record highs, retail investors are as optimistic as they’ve been since the pandemic started, according to our recent survey of our daily newsletter readers. We’ve been surveying them for the past year on their sentiment, their fears, their allocations and their trust in the U.S. equity markets, and they’ve never felt so emboldened. 

A 75% rise for the S&P 500 since late last March might have something to do with it. So might the acceleration of economic activity amid the better-than-expected vaccine rollout, which has led to a sharp decline in COVID-19 cases here in the U.S. 

But stocks seem to have priced a lot of that in as traditional fundamental metrics for determining fair value, like the CAPE Ratio or price-to-earnings, are at multi-year highs. Interest rates, while still historically low, are rising along with inflation. 

However, none of that is scaring too many individual investors away from stocks. 48% of our readers say they are bullish, which is four times as many as those who say they are bearish. Thirty-nine percent are somewhere in the middle, but the overwhelming majority are horns up, and expecting more gains.

Don’t Worry…Be Happy

Stock market volatility has nearly been a non-factor since November. After raging to record highs late last March, volatility, as measured by the VIX or CBOE Volatility Index, has been on a slow and steady decline for the past 12 months. There have been a few flare-ups, like what was seen in January 2021, but it’s been generally quiet inside the stock market’s relentless climb to record highs.

As such, 57% of our readers say they are mostly not worried about recent market events, and 64% say they trust the markets the same or more than they did six months ago. Furthermore, only 24% are anticipating a significant drop in the market in the next three months, compared to 68% last June, almost one year ago.

Bubbles, Anyone?

Maybe more like a bubble bath, because our readers aren’t afraid to point out a couple when they see them. Sixty-one percent of our readers who responded to the survey said we are in a bubble, but like a warm jacuzzi, they seem to be comfortable swimming around in it.

They are seeing bubbles, but mostly in Bitcoin. When asked, 40% of those surveyed said the cryptocurrency is in a bubble, with only 32% saying stocks are in one. Meanwhile, 31% of our readers think U.S. residential real estate and Dogecoin are in bubbles. What’s ironic is that Dogecoin, the quasi-joke of a crypto token, has seen its price spike 17,400% in the past 12 months, while U.S. home prices have risen 17% on average in the same time period. Only 26% of our readers think SPACs are in a bubble.

Stocks and Stock Picking

Investopedia newsletter readers tend to be savvy investors, and have proven to be consistent in their stock and ETF picks by maintaining discipline throughout the pandemic. Most of our readers (56%) plan to continue to invest the same amount they have been investing for the next several months, while 24% said they will be investing more, and 20% said they will be investing less. About one-third say they are moving to safer investments, away from stocks, and only 20% say they plan to be more risky.

One interesting trend from our most recent survey is our readers attraction to ETFs over individual stocks. Thirty-five percent said they plan to invest more in ETFs, compared to 33% who plan to stick with stocks. Nearly 20% said they will be investing less in individual stocks—about the same percentage who said they will be buying more cryptocurrency.

When it comes to stocks, our readers have maintained their favorites- especially the biggest names.

Beyond Bubbles, What are Investors Worried About?

Bubbles aside, policy is weighing on investors’ minds. While more than 40% expect more record highs for U.S. stocks, 61% expect higher corporate taxes, and 55% expect higher taxes on capital gains. President Biden wants to raise both to pay for more than $6 trillion in government spending programs to fundamentally restructure the U.S. economy. To that end, 32% of our readers expect more fiscal stimulus, while 18% said they expect the Fed to raise interest rates fairly soon. Lockdowns and business closures due to a resurgence of COVID-19 are a distant concern, thankfully.

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