Individual Investors Will Turn Away In A Bear Market

Individual Investors Will Turn Away In A Bear Market


The S&P 500 index already has fallen 11% from its 20 May record high, and many analysts say more is to come, I am one of them.

That is bad news for individual investors and could push them away from stocks for years

There are several factors that may push “mom and pop” from stocks, as follows:

1. The volatility in stocks was preceded by a dive in commodity prices that has sent the  major market indices to 16-yr lows. Crude Oil prices have hit 6-year lows, Oil and others hit by this Bear Market are often mainstays in retail investors’ accounts.

2. The market’s mechanism has been destroyed by increased and more-costly regulatory burdens. These serve to limit dealer inventories in numerous asset classes and impair market liquidity, creating a vacuum that’s taken up by leveraged ETFs and high-frequency trading strategies.

Note: the stock dive does not necessarily make equities a good buy now.

3. The market’s P/E Ratio (price-earnings) totaled 16.8, 7% above its 10-yr average of 15.7. That does not inspire real confidence in a stock market rebound.

4. Robert Shiller’s cyclically-adjusted P/E Ratio, which includes 10 yrs of earnings, stands at 24, well above its historical average of 16.6.

5. When markets are this high the track record of future returns is not all that good.

The volatility since last Wednesday, 19 August have been a wake-­up call for many portfolio managers. It forces participants to reconsider their base assumption for things like earnings and revenue growth.

As of 6 August 56 companies in the S&P 500 issued negative earnings guidance for Q-3, while just 22 had issued positive guidance, according to the data.

Friday at the close: DJIA -11.76 at 16643.01, NAS 100 +15.62 at 4828.33, S&P 500 +1.21 at 1988.87

  • NAS 100 +1.9% YTD
  • S&P 500 -3.5% YTD
  • Russell 2000 -3.6% YTD
  • DJIA -7.1% YTD

Have a terrific weekend.


Paul Ebeling

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