People usually get the stock market wrong

·1 min read

Data: New York Fed Survey of Consumer Expectations; Chart: Axios Visuals

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.

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  • 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.

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