New research reveals that the majority of DIY investors are pessimistic about the outlook of the global economy. Rising inflation is cited as the biggest concern. So, will the stock market crash this year? Or will the bull continue to run? Let’s explore.
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What does the research say about investor confidence?
According to research by eToro, an eyebrow-raising 54% of DIY investors say they are ‘not confident’ about the prospects for the global economy. Meanwhile, 47% of those polled claim they are most worried about inflation. This is perhaps not surprising, given that inflation is taking off around the world.
On Wednesday, the ONS revealed its latest Consumer Price Index was running at 5.4%. This is the highest rate of inflation the UK has seen since March 1992. High inflation is generally bad news for investors as rising prices make it more costly to produce products. This can shrink profit margins and harm share prices as a result.
Aside from inflation concerns, eToro’s research also revealed that 26% of DIY investors see ‘international conflict’ as a risk to the global stock market. Much has been made in the news recently of the possibility of Russia carrying out another invasion of Ukraine.
Despite these worries, 56% of investors say they do not plan to reposition their portfolios. This suggests that the majority of DIY investors are content with their current risk exposure.
This theory is supported by eToro’s global markets strategist, Ben Laidler, who explains: “Our data suggests the majority of retail investors are holding fast with their investment strategies for now. While certain risks are posed for markets in the year ahead, and we’ve seen something of a pivot in recent days toward stocks that benefit from interest rate rises, there’s little indication that retail investors are beginning to significantly diverge from their strategies.
“Retail investors are, in effect, sticking to best practices for investing – avoiding selling at the first sign of turbulence and ensuring they have a thesis which thinks about the right long-term approach, not short-term gain.”
What about the UK economy?
While eToro’s research focuses on the global economy, it is interesting to note that UK investors have a more positive outlook, with 52% of UK-based investors saying they are ‘confident’ about the outlook for the UK economy. This compares to 48% of respondents who were asked the same question in September last year.
Will the stock market crash?
As many investors lack confidence in global stock markets, it’s plausible that some will be expecting a stock market crash at some point this year.
However, predicting a stock market crash is a near-impossible task. That’s because such crashes can be caused by unforeseen events. Examples include war, a sudden economic depression or a global pandemic (like the one we’re experiencing now).
Likewise, stock market crashes can occur because of falling demand. This may be due to investors believing that certain stocks are overvalued. This sentiment can cause a domino effect, leading to panic selling, which can send stocks plummeting further.
While DIY investors, who are most likely to be active investors, may try to benefit from a stock market crash by buying stocks at perceived ‘discount’ prices, those with a longer-term outlook, such as passive investors, may be happy to stick with their existing portfolio, safe in the knowledge that the stock market usually recovers from any crash.
During the last stock market crash in 2020, when the FTSE 100 plummeted following the outbreak of Covid-19, the UK’s largest share index took less than two years to recover to its pre-pandemic level.
Are you looking to invest? Remember that past performance of the stock market should not be used as an indicator of future results. Always be mindful that you can lose money with any investing.