Investors Stay Put, Because They Can’t Think of Better Options

Even the worst markets are said to have a paradise. Some inexperienced investors are wondering if this will happen.

The S&P 500 fell 16%, its worst start in a year since 1970, according to Dow Jones Market Data. But assets of all kinds also declined. Gold, often considered paradise, has plunged into the red. Bonds are usually another haven, but this year they are falling alongside stocks, an unusual parallel that reflects investor uncertainty.

The risky crypto market, seen as a counterweight to traditional stocks for many years, is also booming, with bitcoin losing more than a third of its value by 2022.

This all-inclusive market is bewildering for investors large and small after a string of years when the market seemed to be only going up. Now, investors are facing red-hot inflation and the end of easy monetary policy. There is also the question of whether the US is headed for a recession, which some investors fear could happen if the Federal Reserve raises interest rates too quickly.

Many traders say they are looking for other investments, but even the tried-and-true alternatives have lost their appeal. Cash discounting – a common strategy in turbulent times – appears less attractive when inflation hovers above 8%, reducing purchasing power. Investing in real estate can feel like it’s not smart when mortgage rates are on the rise and home prices are at record highs.

The only option, some investors say? Sit tight.

“There is paralysis,” said Greg Swenson, founding partner of Brigg Macadam, a London-based investment bank. “Even if people sell, they don’t know how to reinvest it.”

Some investors are holding onto their stocks because they are betting that they will eventually be rewarded, and even buy more on down days. Others are being stubborn because they can’t think of anything better to do.

A recent analysis from Bank of America Corp. shows that cash outflows from stock funds are relatively small. The bank estimates that for every $100 poured into the stock market since the beginning of 2021, only $4 has been withdrawn so far. That’s based on data through Wednesday from EPFR, which tracks the movements of retail and institutional investors in mutual funds and exchanges.

That implies that investors are not panicking yet. It also suggests that stocks could fall even further. During the Covid-19 stock market sell-off in 2020, investors raked in $61 for every $100 invested, Bank of America analysts said. During the financial crisis, it got even worse: Investors redeemed $113 for every $100 they invested.

Late last month, about 59% of individual investors said they expect stocks to fall over the next six months, according to the American Association of Individual Investors – the most bearish sentiment since the financial crisis. . That same month, however, stocks made up about 70% of their portfolio, hovering around their highest levels since 2018.

Investors are grappling with two competing desires: a safe place to deposit their money and a thirst for market returns.

Take money market funds as an example. According to EPFR, in the 7/11 weeks since Russia invaded Ukraine, investors have netted a total of $186 billion out of money market funds. In the remaining 4 weeks, they netted a total of 132 billion USD.

Al Catella stopped checking his brokerage account, thinking it was better not to know. Mr. Catella favors dividend stocks like Chevron Corp. and Lockheed Martin Corp., which have delivered solid profits this year. However, he said that the stock portfolio is also likely to suffer a drop in Comcast Corp shares. and JPMorgan Chase & Co.

“I’m a bit ignorant about getting into the market right now,” said Mr. Catella, an 83-year-old attorney from Illinois.

In January, as stocks began to fall, Mr. Catella shifted more of his retirement portfolio into bonds – a move he said he now regrets given the bond’s performance over the past year. this year. “They say bonds are a good defense, but they never seem to help me much,” he said.

The market has been looking increasingly shaky lately: Stocks, bonds, and cryptocurrencies are all down. WSJ’s Caitlin McCabe looks at some of the reasons behind the recent market frenzy. Photo: Spencer Platt / Getty Images

Individual investors aren’t the only players confused about shelters, especially amid expectations of more pain ahead.

“There is still a lot of air to get out of the market,” said Charlie McElligott, cross-asset macro strategist at Nomura Securities International Inc..

Florian Ielpo, head of macro at Lombard Odier Investment Managers, said his team in January had begun to reduce its overall exposure to the markets. Today, 70% of the company’s top multi-sector portfolios are in cash. That’s not necessarily its first choice, he said, but he’s finding a few alternatives. In addition to cash, he said, the flagship fund has a small exposure to commodities, stocks and bonds, and other trend-following strategies.

“We were looking for diversification devices, but some of the diversification devices are no longer working,” Mr. Ielpo said.

Write letter for Caitlin McCabe at

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