Individual Investors Still Skittish Amid Persistent Inflation and Bank Worries

Individual investors are still cautious with their investments and continue to curb their risk appetite amid a rise in market volatility, uncertainty around interest rates and inflation, and recent concerns about the health of the nation’s financial sector. Those are among the main themes according to Investopedia’s most recent sentiment survey of our daily newsletter readers and recent reader trends on Investopedia.com.

2022 Still Stings

The recent market selloff is a reminder to investors of the scars left from the bear market of 2022. Nearly half of respondents (49%) reported suffering losses of more than 10%, with nearly one-fifth reporting losses of 20% or more. Renewed uncertainty about monetary policy and the stability of the capital markets are still dominant themes among our readers. 

Nearly half of survey respondents say they are at least “somewhat worried” about recent market events and one-third are still expecting more losses for the stock market of at least 5%. These numbers are little changed from January's survey results, even as the stock market has given up some of the gains made earlier this year. Just 11% of respondents are expecting gains of at least 5% for the stock market in 2023.

Despite the recent slump for stocks, 41% of respondents say the market is still overvalued, even as the forward price-to-earnings (P/E) ratio for the S&P 500 is at 17.3, down from a high of 23 in late 2021. That’s prompting more investors to wait it out before they feel comfortable investing. Fifty-one percent of respondents indicated they are exercising patience, while 43% say they are buying the dip in equities.

Safety Plays

Our readers, who are mostly self-directed investors with several years of experience, continue to play it safe in the capital markets. While ETFs are the most popular choice among survey respondents, money market funds are growing in popularity as 30% of respondents indicated they are favoring those over individual company stocks, followed by certificates of deposit (CDs). With yields for money market funds and CDs ranging between 4-6% lately, the flight to safety has been more pronounced in our most recent survey. Options and cryptocurrencies are further down the list compared to where they’ve been in the past two years.

What's Worrying Investors?

While this survey was conducted before the collapse of Silicon Valley Bank and Signature Bank, and their subsequent seizure by the FDIC, investors have still had plenty to worry about lately. Inflation remains their top concern, followed closely by rising interest rates and geopolitical uncertainty. The future path of interest rates has been muddled further by recent events in the banking industry, but inflation—as of the latest CPI reading—still remains above 5%.

Since the recent fallout in the banking sector has been so top-of-mind lately, we’ve identified several banking-related terms, articles, and definitions that have experienced extreme spikes in reader interest on Investopedia.com over the past week. The top five include:

• What is a Bank Failure?
• What Assets are Protected in a Bank Failure?
• Top Banking Sector ETFs
• What is a Systemically Important Financial Institution?
• What is Contagion?
  

What Would You Do With an Extra $10,000?

With an extra $10,000 to play with, 17% of respondents said they would buy individual stocks, topping the list. But money market funds and CDs were both second choices and growing in popularity, with 11% of respondents choosing those options. Until the stock market shows signs of stabilizing, those products and the general feeling of caution among individual investors is likely to remain in place.