Investors are starting to hoard money over fears of inflation and a possible recession, a recent Bank of America (BAC) report said. BofA joins Goldman Sachs (GS) in expressing concern about the market outlook in 2022 as institutional investors become increasingly wary of economic headwinds.
However, Dan Egan, Betterment’s Director of Behavioral Finance and Investing, believes that current investor behavior is not necessarily indicative of a significant downward trend.
“So far, we’re not seeing any strong bearish sentiment,” Egan told Yahoo Finance Live. “In March, April 2020 – this is sort of a canonical example of what tends to happen – out of 1,000 investors, six of them do something, whatever it is. Of these six, you’ll see about three of them get defensive. That means withdrawing money or having a more defensive asset allocation. “
In this scenario, Egan said that two of the six investors who alter their strategy actually become more aggressive, engaging in a “buy the dip” approach.
“And the last one will revise their financial plan, maybe push their goals out,” he added. “So neat, tidy, we are seeing one in 1,000 people doing something defensive during a big down market. So, in general, there isn’t much bearish sentiment. “
Egan joined Yahoo Finance Live to discuss the outlook for retail investors amidst wild swings in the market. With the Federal Reserve’s decision on Wednesday to raise interest rates by 25 basis points during the war in Ukraine, markets face a lot of uncertainty ahead of the second quarter of calendar year 2020. Fed is scheduled for May 3-4.
BofA’s recent Global Fund Manager Survey reported that 60% of respondents expect global equity markets to enter a bearish state this year where stock prices fall by at least 20%. This is up from just 30% of respondents who had the same sentiment in last month’s report.
Behavior of retail investors
Regarding the observations regarding the behavior of the average retail investor, Egan noted that the level of investor experience is often indicative of how they have reacted to the recent withdrawal.
“Normal people just have a continuous mindset of buying every two weeks,” he said. “On the other hand, what we see in these times is that new investors are withdrawing from pulling the trigger. Existing Investors Who Have Experience: They have no problem when they see it. And they got through the Trump election, Brexit, [many] pushups that have taught them that this is generally short term and will pass ”.
Egan said inexperienced investors with no experience in downturns are often “scared” and end up waiting too long to buy. However, some experts believe that investors should be patient rather than precocious – Stuart Kaiser, Head of Equity Derivatives Research at UBS (UBS), recently expressed his concern about the problems currently looming in the markets.
“[UBS are] definitely not the buyers of the drop at this point, “Kaiser told Yahoo Finance Live.” I mean, just from a certain perspective, we were worried about the first half of this year even before the Russia-Ukraine conflict only started on the basis of the Fed and the dynamics of growth and inflation. So geopolitical things only strengthen it. “
Thomas Hum is a Yahoo Finance writer. Follow him on Twitter @thomashumTV
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