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Measuring Investor Sentiment During a Period of Unprecedented Growth
My father-in-law had a saying, “If something is too good to be true, it is.” Yet the last quarter of 2017, which in many ways seemed unbelievable, really did occur. During this time, all-time stock market highs became commonplace and the US economy continued to pick up momentum. 637,000 jobs were added and the term “full employment” was quoted in the media with virtual champagne corks popping in the background. Consumer confidence reached a high not observed since the start of this century, and the CBOE Volatility Index, or VIX, hit an all-time low since its inception in 1993.
Throughout the fourth quarter of 2017, uncertainty levels dropped and investors became increasingly hopeful and optimistic. Confidence was highest in November while, despite political and social events, anxiety and fear remained largely at bay. As the new year approached, hope and optimism became the leading emotions expressed by investors toward the market.
As part of our monthly Cogent Beat Investor survey, we identify the investors who are planning to open an investment account in the next three months, enabling us to isolate investors who are “ready to act.” A dive into investor sentiment comparing ready-to-act (RTA) investors with those who do not report purchase intent reveals some key differences between the two segments.
During October 2017, while positive sentiment is selected more often, RTA investors were significantly less uncertain and more fearful compared with not-RTA investors, suggesting that they were pretty sure there was cause for worry. RTA investors grew significantly more optimistic in November, yet a proportion reported to be more anxious and fearful compared with the not-RTA segment—evidence of the “too good to be true” factor. That said, RTA investors ended the year full of exuberance with levels of confidence, optimism and hope that were significantly higher than their not-RTA counterparts.
As volatility has arrived in 2018, including some of the largest daily point drops in the Dow’s history, it’s increasingly important to track how investors are feeling. Research has determined that individual investors are as emotionally driven in investing as they are for other purchase decisions. Keeping a pulse on the leading emotions impacting investment decisions enables financial services firms to quickly adjust their marketing messages to keep pace with prevailing trends. Importantly, investors with purchase intent report greater sensitivity to market activity and political events compared with non-RTA investors.
Financial services firms that can effectively harness this higher level of engagement, whether it is in the form of heightened awareness, enthusiasm or concern, and then guide these investors to the appropriate solution will strengthen their potential to win new business and expand wallet share.
We’ll be reporting on investor sentiment quarterly as we’re interested to see how recent unsteadiness in the market has affected affluent investors’ attitudes and investing behaviors. To get the first look at these data, subscribe to our newsletter, Cogent Thoughts, or check out our Tracking Affluent Investor Sentiment page here.