Individual Investors Warming to the Rally as Markets Touch New Highs

Individual investors are continuing to search for their inner bulls as markets make new record highs, even though lingering concerns about bubbles and political unrest threaten to dampen their enthusiasm. According to Investopedia’s latest sentiment survey, an increasing number of respondents say they are investing more in the stock market than they were last November, continuing an upward trend that was established in December.

Still, less than a quarter of respondents indicate that they are leaning more heavily into stocks in a sign that not all are completely convinced that higher highs are coming. While fewer investors fear a significant market decline in the next six months and they are less worried than they have been, more than one-third are still concerned about recent market events—that’s down from 50% in November.

Reasonable Expectations

The 24% rally in the S&P 500 in 2023 was a rally that not all investors wanted to believe. High interest rates , sticky inflation, and geo-political unrest may have clouded their belief as individual investors slowly warmed back to the stock market towards the end of the year. With the market back or near record highs, more investors are accepting the trend with nearly two-thirds of respondents anticipating more gains over the next six months, and 34% of them anticipating that the market will rise at least another 5% or more in that time frame. Less than 20% of respondents are expecting the market to decline over the next six months, continuing the trend of less pessimism that began last November.

Top Concerns

Concerns about a potential recession have receded among individual investors, and inflation has drifted lower among their worries as price increases have slowed significantly over the past year. The upcoming presidential election in November, however, has dominated individual investors’ list of concerns for the past several months as the likelihood of another Biden versus Trump rematch takes shape.

Sixty-percent of respondents listed the race for the White House as their top concern, followed by war in the Middle East, and unrest with China. While individual investors have no way of knowing how the presidential election will impact their portfolios, the potential unrest—given what we witnessed four years ago—may be giving them pause.

Half of Readers Believe A.I. and Mega-Cap Tech Are Overvalued

The outperformance of risk assets , like highly valued tech stocks and cryptocurrency, over the past three months continues to make several of them appear frothy , according to our respondents. A.I.-related stocks top the list of assets our readers deem to be overvalued at 52%, while mega-cap tech stocks and cryptocurrency aren’t far behind. Bitcoin’s rise of over 150% in 2023 may be contributing to that sentiment, as well as the staggering rise in shares of companies that are leaning into developments in Artificial Intelligence like Nvidia ( NVDA ) and Microsoft ( MSFT ). With the S&P 500 dancing around all-time highs lately, 43% of respondents think it is overvalued and in bubble territory—a six percentage point increase since last November.

What Investors Would Do With an Extra $10,000

While ETFs and stocks remain our readers’ top choices for what they are currently doing with their money, the perceived frothiness of some sectors and the overall market would not necessarily deter them from buying more—especially if they had an extra $10,000 to spare. While stocks have topped our respondents’ list of assets they would buy with that extra cash since November, equities are now their top choice to allocate an additional $10,000, followed closely by ETFs and index funds. Only 9% of respondents selected Certificates of Deposit (CDs) as their top choice—a significant decline from most of 2023. Only 8% selected paying down their debt as their top use of an extra $10,000, suggesting they either have little to none of it, or would rather bet on more upside in the stock market than servicing their obligations.

Investing With the Giants

Investopedia’s readers are pretty faithful to their favorite stocks, and new all-time highs for many of them has only made that bond stronger. The Magnificent 7, as they’ve been dubbed, which includes Apple ( AAPL ), Amazon ( AMZN ), Alphabet ( GOOGL ), Microsoft ( MSFT ), Meta Platforms ( META ), Nvidia ( NVDA ), and Tesla ( TSLA ), are all represented in their top ten holdings, and most have delivered sizable returns over the past year, and decade, for that matter. New to this round’s list is chipmaker AMD ( AMD ), which, like Nvidia, has benefitted from its focus on developing chips for A.I. processing and enterprises.

As for Bitcoin and Those ETFs…

While Bitcoin and other cryptocurrencies have never been particularly popular among our survey respondents, the SEC’s recent approval of several Spot Bitcoin ETFs did little to change their appetite or their knowledge about digital currencies and the new exchange-traded products now available to them. Sixty percent of respondents weren’t familiar with these new Bitcoin related ETFs, and 27% said they were not likely to invest in them. Despite the attention cryptocurrencies attract in financial media, it’s clear that more awareness is necessary before they become mainstream assets.