According to a recent E-Trade financial survey, 2 out of 3 investors think that the US is in a market bubble or approaching one. The E-Trade survey covered 904 investors with at least $10,000 in their online accounts between January 1 to January 7, 2021.
Despite the fears of a market bubble, 57% of investors still feel bullish about the market. Also, 60% think more volatility will increase this quarter. In addition, recession fears continue to haunt the market. Investors say their top portfolio risks consist of a recession (32%), followed by a continued pandemic (30%).
Market Corrections Are a Matter of When Not If
Mike Loewangart, Investment Strategy Managing Director, lists the factors affecting the market right now. He said: “Investors see that unprecedented fiscal stimulus, the Fed’s easy monetary policy, the vaccine rollout, and relatively healthy earnings are all positives for the market.
However, Loewangart cautioned that “these factors may already be priced in, and market corrections are a matter of when not if. Kicking off the new year, it’s a good practice to reassess financial goals and take a pulse check on your comfort level with risk.”
Which Sectors Will Perform This Quarter?
Based on the replies of the respondents, 59% of investors see the most potential in healthcare. The pandemic continues to rage on, but vaccines are rolling out at a consistent pace. The demand for doses will remain high, and investors hope for improvements in the distribution stage.
Information Technology is the second industry with the most potential, as 46% of respondents voted for it. Lots of work-from-home requests are still going on, and understandably, Americans are slow in returning to the office. As a result, IT staples such as WFH tools and video conferencing software would still get some love. Meanwhile, Energy ranks third as the most potential industry at 30%. This sector remains highly dependent on oil prices, and the delayed reopenings can make things more volatile. However, demand will remain for energy, and investors are now hunting for undervalued companies as well as rising stars in alternative energy.
Millionaires are More Bullish Than the Public
CNBC also looked into a subset of millionaire responses in the same survey. These are the respondents made of 188 investors who have $1 million or more of investable assets. Of the total surveyed, 9% of millionaires say that the market is not in or near a bubble. Meanwhile, 16% think they are in a market bubble. 46% think that the market is “somewhat in a bubble.” Another 29% say that the market is approaching a bubble. Even as these investors think that America is in a market bubble, they remain increasingly bullish. 64% of millionaires see more potential in the markets, up 9% from the previous quarter. In comparison, the broader public investors are only 57% optimistic. Loewengart remarked that “Everything outside of big tech became better potential opportunities.”
Among these investors, those who increased their risk tolerance went up from 16% in Q4 to 24% in this quarter. In comparison, 63% didn’t change their level of tolerance, while 13% reported reducing risk tolerance. The wealthier millionaire set expects around 5% returns this quarter. In addition, 59% of millionaires expect the S&P 500 to gain, with 43% of those seeing a gain no greater than 5%. Those thinking that the market will decline fell from 28% to 22%.
Changes in Portfolios and Assets
At the same time, more millionaire investors are making changes to their portfolios. The rotation is underway, where many investors are now moving their money into value stocks, small-cap stocks, and underperforming sectors like energy and financials. This quarter, around 32% of millionaires are changing their allocations for stocks, a 6% jump from the previous quarter.
However, investor preference for assets varies between the millionaire group and the general public. Millionaires have less appetite for blockchain and crypto compared to the general public ( 30% and 19% respectively), as well as for cannabis products (30% vs 18%) and Special Purpose Acquisition Stocks (SPACs, at 24% vs 16%).
Watch the Businesswire report on the E-Trade survey saying that most investors believe the market is in bubble territory:
Do you agree that we are in a market bubble right or at least nearing a bubble? Let us know what you think by sharing your thoughts about the market right now.