Investors Cozy Back Up to Stocks as Recession Fears Loom

Signs that inflation may have peaked and a month-long rally for stocks have warmed investors back to the equity market, despite growing concerns about a recession in 2023. According to Investopedia’s most recent survey of our daily newsletter readers, respondents are less worried about recent market events than they were in late September, and fewer readers are expecting a significant decline in the next three months. Moreover, nearly one-fifth of respondents are expecting continued gains of at least 5% or more over the next six months.

While overall sentiment is still highly cautious, more respondents are willing to put money back to work in the stock market than they were in late September, but they are favoring individual U.S. stocks more now than they were earlier this year.

While more readers are warming up to stocks, 44% of respondents say they are making safer investments given recent market and economic events. Further, 24% say they are putting money back into money market funds—the highest percentage all year—and 20% say they are favoring CDs, up from only 6% last February. Only 10% say they are making riskier investments.

Recession Tops Inflation as Investors’ Biggest Fear

While inflation dominated our list of investors’ concerns over the past several months, signs that it may have peaked have turned our readers’ worries to a potential recession in 2023. More than half of respondents expect a recession to occur in 2023, and 84% say there is a 50/50 chance. 73% of respondents listed a recession as their top concern, followed by inflation, rising interest rates and geopolitical conflicts. These have been the walls of worry surrounding investors all year, and will likely carry over into 2023.

In fact, we asked our readers to choose the top finance and investing term that dominated their sentiment this year, and “inflation” was far and away the top choice.

Despite the 15% drawdown in the S&P 500 to date, more than one-third of respondents still feel that the U.S. stock market is overvalued, while only 14% feel that it is undervalued. With a current price to earnings ratio of 19.95, the valuation of the S&P 500 is well off its highs of 2021, but still higher than its historical average. That may explain why only 20% of respondents say they are putting more money to work in the stock market than they were last summer, but that’s up from 15% in late September. A third of respondents said they are putting less money to work, and while that is down slightly from our last survey, it is 10 percentage points higher than at the beginning of the year.

Crypto Winter: The Cold Never Bothered Them Anyway

The steep collapse of cryptocurrency prices and the recent bankruptcies of several exchanges rattled less than 20% of respondents who have exposure to Bitcoin and other tokens, which is around 25%. On the other end of the spectrum, only 9% of respondents said they used to own cryptocurrency, but do not anymore, while 41% say they never have and they never will, which is an 8 percentage point increase from our last survey.

Where are the Best Returns Over the Next Three Years?

Our readers have always favored U.S. stocks, especially the biggest ones. It should be no surprise that the U.S. equity market is where most of them anticipate the best returns over the next three years. Global stocks and U.S. Treasury Bonds came in second and third.

As for stocks, size and popularity matter when it comes to our readers' top picks. Those have remained fairly consistent since we began this survey in early 2020, but there have been some notable additions and subtractions from the top ten in this most recent survey.

New this month is the addition of Exxon Mobil (XOM), Verizon (VZ), and Pfizer(PFE), while Ford (F), JPMorgan (JPM) and Tesla (TSLA), have all fallen out of the top ten for the first time this year. 

Finally, we asked our readers, if they had to select just one stock or security to buy and hold for the next ten years, which would it be? It was no surprise to see Apple (AAPL) at the top of that list getting 16% of the vote, followed by Berkshire Hathaway (BRK.A), Amazon (AMZN), and Microsoft (MSFT). Some of the other names that topped our readers’ buy-and-hold list for the next decade show how diverse their tastes are.