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eToro CEO Explains How Younger Investors Approach Stocks
eToro CEO Explains How Younger Investors Approach Stocks

Inflation, Recession Fears Have Investors Staying on Sidelines

Many experts forecast an imminent recession, and the S&P 500 has dropped 17% so far this year.
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With many experts predicting an imminent recession and the S&P 500 falling 17% this year, it’s no great surprise that Americans are worried about the economy and the stock market.

A June Allianz Life Insurance survey put some numbers behind the anecdotes. A total of 66% of Americans worry that a major recession is right around the corner, up from 48% in the second quarter of last year.

Also, 82% of respondents are worried that rising inflation will continue to have a negative impact on the purchasing power of their income in the next six months. A total of 71% say their income currently isn’t keeping up with rising expenses.

Consumer prices soared 9.1% in the 12 months through June.

“Rising costs on necessities like food and gas are hitting Americans’ bank accounts,” Kelly LaVigne, vice president of consumer insights for Allianz Life, said in comments accompanying the survey.

“Some might have dipped into their savings to cover those initial increases…. But, as this drags on, the worry about how increasing inflation will affect purchasing power and saving in the long term is increasing,” LaVigne said.

THUMB PCE Inflation JS

Wariness of Stocks

Meanwhile, 65% of respondents say they are keeping more money than they should out of the stock market because of worries about losses, up from 57% in the third quarter of 2021 and 54% in the fourth quarter of 2020.

Just 25% say it’s a good time to invest in equities, down from 28% in the first quarter and 37% in the fourth quarter of 2021.

Also 25% believe it’s worth the risk of potential losses to have unlimited potential gains. This is the first time that number fell below 30% since Allianz started tracking it in 2018.

When it comes to funding retirement, 60% of Americans say they think it’s important to have some retirement savings protected from loss.

Generational Issues

Looking at significant results for different generations, a less-than-overwhelming 56% of Millennials (born 1981-96) said they have a financial plan to address inflation, down from 61% in the second quarter.

Among Generation X (born 1965-1980), 75% of respondents said their income isn’t keeping up with rising expenses, up from 68% in the first quarter of this year.

Turning to Baby Boomers (born 1946-1964), 73% worry they might not be able to afford the lifestyle they want in retirement because of inflation. That’s up from 66% in the first quarter.

Clearly consumers and investors are pessimistic. Not to minimize anyone’s woes, but it’s all part and parcel of the business cycle. It looks like we’re headed (or already in) the downward part of that cycle. We can only hope it will be brief.