People usually get the stock market wrong
The average American consumer thinks it’s unlikely the stock market will be higher 12 months from now.
Why it matters: Enthusiasm toward stocks is the kind of thing that inflates market bubbles that crash.
- On the other hand, caution toward stocks often means prices have room to go higher as that caution is eventually proven unwarranted.
By the numbers: Each month since June 2013, the Federal Reserve Bank of New York has asked consumers: "What do you think is the percent chance that 12 months from now, on average, stock prices in the U.S. stock market will be higher than they are now?"
- According to results released Monday, respondents in June said on average that there was a 40.2% likelihood that stocks would higher. That's down from 40.8% in May.
- The only time this measure was above 50% was in April 2020, right after the S&P 500 crashed to a low on March 23.
Yes, but: Ritholtz Wealth Management’s director of research, Michael Batnick, says history favors the optimists.
- "Going back to 1950, there was a 74.16% chance that the S&P 500 would be higher one year later," Batnick tells Axios.
- "When the S&P 500 was at an all-time high, there was a 74.10% chance the market was higher one year later."
What they’re saying: "Consumer sentiment is vulnerable to news items that report negative projections," Oppenheimer strategist John Stoltzfus tells Axios.
The bottom line: Just because people believe the stock market is unlikely to produce a positive return doesn’t mean it won’t produce a positive return.