Thanks in large part to the February stock market correction and the volatility that is back with a vengeance, retail investors’ confidence in stocks is dwindling. And that’s with corporate earnings for the first quarter coming in strong and economies around the world growing. TD Ameritrade‘s chief market strategist JJ Kinahan thinks this may have something to do with the Dow Jones Industrial Average.
In an interview with Illinois-based TV station WQAD 8, the market strategist at TD Ameritrade Holding Corporation (AMTD) said that investors seem to be overreacting to the point drops in the Dow. After all, seeing a 300-point decline is a lot more worrisome than, say, a 1% dip. But with the Dow Jones Industrial Average at such highs, even a 100-point decline equates to a loss of less than half a percent.
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“Ten years ago, 500 points was ‘hide the women and children.’ Now, it’s 2%,” Kinahan said in the interview. The strategist from the Omaha, Nebraska-based discount brokerage noted that, with risk back in the market, investors are more skeptical. That could be why, when some of the major banks began reporting first quarter earnings last month that beat Wall Street views, it did little to lift their stocks and the market. “At the end of last year, we were in this feel-good area. Nothing could knock the market off its perch,” said Kinahan. “Now that there is risk back in the market, people are more suspicious.”
Late last month, the Conference Board reported that, in March, just 33% of investors expected stocks to increase during the coming 12 months, down from 51% at the start of the year. At the beginning of January, the stock market was booming on the back of President Donald Trump’s tax reform bill that was signed into law.
TD Ameritrade also saw sentiment change among its clients in March, reporting that its Investor Movement Index (IMX) dropped 12%, hitting its lowest point in close to two years. At the time, the brokerage reported that its IMX – a proprietary, behavior-based index created by the company to gauge what investors are actually doing – came in at 5.22, lower than the 5.95 reading in February and down for the third month in a row.
“March’s market sell-off continued with news of a potential trade war between the U.S. and China, followed by a data breach involving Facebook that impacted millions of users,” Kinahan said in a press release announcing results of the March index. “Clients navigated the markets by dialing back exposure and rotating out of popular stocks – such as Facebook – which has been a primary holding for many clients including millennials.”