January Rally Tempers Fear Among Individual Investors, but Caution Remains

The latest Investopedia investor sentiment survey shows that retail investors are a little less worried about their portfolios, but not quite ready to jump in.

Stock market charts
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Call it the January Effect, the realization that interest rate hikes may slow, a growing sense that inflation may truly be easing, or all of the above, but individual investors are less scared than they were in early December, Investopedia’s latest reader sentiment survey shows. That said, nearly one-third of respondents expect the S&P 500 to fall at least 5% over the next six months, while only 16% expect it to trade higher, and 11% expect it to be flat.

The lack of outright conviction that the stock market will trend higher is also reflected in what investors tell us they are doing with their money. Only one in five respondents said they are investing more in the stock market, while 31% are investing less because they think stocks have further to fall. Forty-seven percent of respondents said they are continuing to play it safe by buying CDs and similar products, while only 11% are taking more risk.

While individual investors may still be cautious, their list of worries has changed over the past few months as inflation has subsided and the Federal Reserve has tempered its rate-hiking plans. While 66% of respondents say they are worried about a recession over the next 12 months, they are less worried about it than they were in early December.

Inflation worries have also subsided as consumer prices have fallen well below their June 2022 highs as the Fed has raised interest rates and consumers have changed their spending habits. Fifty-nine percent of respondents said inflation was their biggest concern, down from 70% in early December. Covid-related concerns are on the rise, however, up 9% since October, as new strains have proven to be very contagious.

Recession Likely, but Not a Long One

While the prospect of a recession remains our readers' top concern, over half of respondents feel it will be a short and shallow one. Only 10% feared a long and deep pullback, while 13% expect a slowdown that does not turn into a recession. Only 9% believe the U.S economy will return to growth of 2% or more in the next 12 months.

Patience, and CDs

Somebody find Axl Rose, because investors just want a little patience until they are ready to aggressively buy stocks again, and 24% say they are buying certificates of deposit (CDs) in the meantime. With the yield on some CDs greater than 4% at some banks, investors finally have a reasonable alternative to straight cash or a risky stock market. As for those investors who are stock-centric, 49% say they are "waiting it out," while 41% say they are "buying the dip." Further, 19% say they are selling stocks and taking profits, while 14% say they are selling stocks and taking losses.

The $10,000 Question

While caution still dominates investor sentiment, 18% of respondents said they would buy individual stocks if they had an extra $10,000. That trumps cash savings, which was the number one choice in early December. The steep sell-off in some of our readers' favorite stocks like Tesla (TSLA), Apple (AAPL), Microsoft (MSFT), and Disney (DIS) may have a lot to do with their willingness to buy them 'on sale' if they had the extra cash. Nine percent of respondents would buy a CD with that extra money.

A Few of Their Favorite Stocks

Investopedia’s readers are pretty consistent about their favorite stocks, and most love home cooking—especially the mega-cap tech stocks. Apple has been a perennial favorite, followed by Microsoft, Alphabet, and Amazon. Respondents have stood by these stocks despite the fact all four have vastly underperformed the S&P 500 over the past six months. Most of our respondents have held these stocks for a long time, which might explain their favoritism. Back on the list of our readers’ top stocks is Tesla, which has been out of the top ten for the past several months.

How Much is Enough to Retire?

Given the steep selloff in stocks and bonds in 2022 and the disruption it brought to a lot of retirement accounts, we wanted to know how much money our readers think they need to retire. What is enough? The majority of respondents, or 60%, said anywhere from $1 million to $3 million would be sufficient, assuming they were to stop working by the age of 65. Only 4% said a range of $5 million to $10 million would be sufficient, and 9% said they would be able to retire with less than $1 million.

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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