Investors Believe We're In a Stock Market Bubble

Fri, 08 January 2021  |  stock market investing 

A new study from E*TRADE indicates an increasingly bullish investor mindset despite volatility and recession concerns, and two-thirds believing the stock market is in bubble territory.

“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,” said Mike Loewengart, Managing Director of Investment Strategy at E*TRADE Financial. “Yet at the same time there is awareness that some, if not all, of 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.”

• Investors see a market bubble. Two thirds of investors (66%) think we’re fully or somewhat in a market bubble.
• Yet bullish sentiment climbs. More than half of surveyed investors (57%) are bullish, up 5 percentage points since last quarter.
• They expect more volatility. Three in five investors (60%) think volatility will increase this quarter.
• Recession fears linger. Investors say their top portfolio risk is a recession (32%), followed by the pandemic (30%). Concern regarding the new presidential administration took a backseat (25%), ticking down 19 percentage points.

The survey explored investor views on sector opportunities for the first quarter of 2021:

• Health care. Investors continue to see the most potential in the health care sector, which maintained its top spot (59%). There is still much to be seen about the logistics of mass vaccination, but investors seem to have high hopes for strength in this sector if distribution goes according to plan.
• IT. With stay-at-home orders returning and corporate America slow to return to the workplace, interest in the tech sector remained steady at 46%.
• Energy. This historically volatile sector just bumped consumer staples from last quarter, ranking third (30%). The energy sector is highly dependent on the price of oil and, with stalled reopenings around the globe, the sector could be in for more bumps in the road. Investors may see opportunities in undervalued energy names.

About the Survey

This wave of the survey was conducted from January 1 to January 7 of 2021 among an online US sample of 904 self-directed active investors who manage at least $10,000 in an online brokerage account. The survey has a margin of error of ±3.20 percent at the 95 percent confidence level. It was fielded and administered by Dynata. The panel is broken into thirds of active (trade more than once a week), swing (trade less than once a week but more than once a month), and passive (trade less than once a month). The panel is 60% male and 40% female, with an even distribution across online brokerages, geographic regions, and age bands.

Source: E*TRADE