40% of retail investors think stocks are in a bubble but amateurs keep buying anyway, survey shows

July 30, 2021

40% of retail investors think stocks are in a bubble but amateurs keep buying anyway, survey shows

A person using a mobile phone app to invest in stocks. — Retail trading boomed in 2020 during the coronavirus pandemic.
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40% of retail investors think stocks are in a bubble after a breakneck rally, according to a new survey.
But trading app eToro found that amateur investors remain keen on stocks and think a crash is unlikely.
eToro's survey of 6,000 investors found that their biggest worry is inflation, which has soared in the US.
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Two in five retail investors think global stock markets are in bubble territory, but think a crash is unlikely and appear to be happy to keep buying equities, according to a new survey.

Retail investors believe inflation is the biggest threat to their portfolios, a survey published by trading app eToro found this week.

Polling firm Opinium carried out the survey for eToro and spoke to 6,000 retail investors across 12 countries, including the UK and US, who did not have to be eToro users. It gives a sense of how amateur investors view markets as economies recover from the pandemic.

Although 40% of retail investors said equity markets are in a bubble, 15% said they are fairly valued or undervalued. Another 45% said they neither agreed nor disagreed that they were overvalued, suggesting some uncertainty about the future path of securities. A bubble is typically seen as a moment when stock prices rise rapidly and are higher than justified by fundamental factors such as the health of the economy.

A considerably lower proportion of retail investors think stocks are about to crash than think they are in a bubble, however, with 27% predicting a sharp drop before the end of the year.

Stocks have soared since the pandemic-induced crash of March 2020, especially in the US. The benchmark S&P 500 has risen more than 90% since its March 2020 low, and US equities are regularly hitting record highs, even as the global pandemic continues.

"It's worth remembering that while valuations are high, equities are currently cheap compared to bonds," said Ben Laidler, global markets strategist at eToro.

"The fact that just one in four investors believe that another correction is due before the end of the year suggests that many of them are willing to carry on paying current valuations - for now, at least."

Just shy of 40% of retail investors believe rising inflation is the biggest threat to their portfolio, eToro's survey found. But that number rises to 51% in the US, where year-on-year inflation jumped to a 13-year high in June.

eToro found that traditional inflation hedges such as real estate were popular portfolio picks, while a large number of investors were keen on gold.

Read the original article on Business Insider