Investor Anxiety is High, but not Leading to Much Action

Rising interest rates and persistently high inflation are worrying investors

Investors continue to face more anxiety in 2022 as rising interest rates and persistently high inflation top their biggest concerns, but many are reluctant to make any significant changes to their investment portfolios, despite mounting losses. These are some of the key findings of our latest sentiment survey of our daily newsletter readers.

According to the most recent survey findings, 57% of respondents say they are “worried” about recent market events, with 25% of them saying they are “very worried." Both of those figures are several percentage points higher than our previous sentiment survey released in April. The steep sell-off in stocks, especially in popular tech and consumer discretionary stocks, has eroded trust in the stock market, with 46% of respondents saying they trust the market less than they did six months ago, an eight percentage point increase from April. Also, 47% of respondents expect the stock market to trade lower over the next six months, with more than one-third expecting a decline of 10% or more from current levels.

What’s Worrying Investors?

Investors have a long list of concerns starting with inflation and rising interest rates. Those have been the dominant themes all year long, as rising prices across nearly all commodities and services have dampened consumer sentiment. The Federal Reserve has been trying to cool inflation by raising interest rates, and plans to continue raising them throughout the year until the Federal Funds Rate is between 2.5%—3%. In doing so, the central bank runs the risk of tipping the economy into a recession.

As for other concerns, our readers cited geopolitical conflict, namely Russia’s continued invasion of Ukraine, as a significant concern. That has driven up the price of crude oil and wheat, two key commodities from that region. Investors are also worried about continued supply chain disruptions and the Federal Reserve’s reduction of its $8.9 trillion balance sheet.

Playing it Safe, or Frozen in Place?

All of these concerns are prompting investors to play it safe with their investments, according to our survey, or to simply stay put. Forty-seven percent of respondents say they are “playing it safer," seeking refuge in cash, bonds or low-volatility ETFs. That share is up nine percentage points since April. In addition, 43% of respondents say they are staying the course with their investment allocations, hoping the tide will turn. The S&P 500 is down 14% so far this year, and narrowly avoided slipping into a bear market a few weeks ago. Only 10% of respondents said they are “getting riskier” with their investment choices.

Where are the Bubbles?

Despite the sell-off in stocks and other risky assets, our readers still feel that there are bubbles in key areas. Topping the list is U.S. residential real estate, as it has for the past several months, and for good reason. U.S. home prices are up 21% year-over-year, a record gain, with the average single-family home price topping $320,000, according to the National Association of Realtors (NAR).

Cryptocurrencies like Bitcoin and Dogecoin still feel frothy to our respondents, despite a steep drop in their prices, as do non-fungible tokens (NFTs). Despite the spike in oil and gas stocks, only 9% of respondents think commodities are in a bubble.

Playing Favorites

Even though our readers are as concerned about the stock market today as they were in early 2020, they aren’t making a lot of adjustments to their portfolios, according to our survey. Forty-three percent of readers said they are “staying the course," and their list of top stocks has remained quite consistent since we first started tracking investor sentiment in 2020. Mega-cap tech stocks like Apple and Microsoft, dividend-paying blue chips like AT&T (T) and JPMorgan (JPM), and, more recently, oil and gas stocks like Exxon Mobil (XOM), are some of the most widely-held companies among our readers.

That may be one of the main reasons why so many of our readers, and individual investors as a whole, have not made big changes to their portfolios despite the shifting winds in the stock market. Many have held these stocks for years, if not decades, and breaking up with a blue chip is hard to do—even when the returns have been as negative as they currently are. While they may be frightened, many investors have decided to stay put.

Research and analysis by
Amanda Morelli
Amanda Morelli, Sr. Director of Data Journalism at Dotdash
Amanda is the Senior Director of Data Journalism at Dotdash Meredith (Investopedia's parent company) and she oversees development of data journalism projects for brands across the company.
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