Investor behavior
September 23, 2024
Investor optimism for the market and economy remained high during the summer, with projections well above historical averages. Trading activity spiked on August 5, and a closer look revealed that “buying the dip” far outpaced selling, according to our latest Investor Pulse survey. “Investors are walking the walk, pairing optimistic outlooks with opportunistic trades,” said Andy Reed, head of investor behavior research at Vanguard.
U.S. stocks: Individual investors anticipate strong returns
Investor optimism about short-term returns remained elevated over the summer. In June, investors anticipated a 6.1% stock return over the next 12 months, and this high level of optimism remained relatively steady at 6.2% in August. Investors’ short-run expectation dynamics have been relatively flat in 2024 following upward momentum in 2023.
Notably, long-term expected returns (those over the next 10 years) reached 7.9% in August, an all-time high in our survey history. That expectation is substantially higher than the Vanguard Capital Markets Model forecast of 3.2%–5.2%.
“Long-run expectations reached new heights while short-run expectations held steady, suggesting that investors are as confident as ever,” said Xiao Xu, an analyst in Vanguard Investment Strategy Group.
Investors hold favorable feelings for short- and long-term stock returns
Notes: This chart and the two charts that follow show results from the Vanguard Investor Expectations Survey from February 2017 through August 2024. The survey consisted of a random sample of approximately 2,000 Vanguard personal and 401(k) plan investors.
Source: Vanguard, as of September 2024.
The U.S. economy: Growth expectations trend higher with sticky inflation anticipated
Investors’ confidence in economic growth strengthened between June and August, with both short- and long-term projections increasing. Short-term GDP growth expectations rose to 3.5% in August. The long-term outlook showed a larger increase—the expected GDP growth rate over the next 10 years climbed to 4.1% in August.
Investors’ outlook on the economy remains rosy
Source: Vanguard, as of September 2024.
Investors’ outlook on inflation held steady: The median inflation expectation both for the next 12 months and the next 10 years remained at 3% from June to August, well above the Fed target of 2%.
“Economic optimism is riding high as investors remain upbeat about growth expectations,” said Xu. “But inflation expectations haven’t budged from 3%, despite good news that actual inflation has been trending below 3% and towards the 2% Fed target.”
The Fear and Doubt Index: Investors brush off disaster concerns
In August, investors assigned a 4.4% probability of a stock market disaster (defined in the survey as the market dropping by 30% or more in the next 12 months), which held steady with their June expectation. The predicted probability of an economic disaster (defined as an average of –3% annual GDP growth over the next three years) decreased to 4.4% in August from 5.0% in June.
“Investors were not only unfazed by the short-lived market sell-off and some acceleration in the unemployment rate,” said Reed, “they have been feeling downright bullish, buoyed by steady economic growth, declining inflation, and a resilient market.”
Confidence remains robust despite recent market instability
Source: Vanguard, as of September 2024.
Vanguard investors stayed the course during August volatility
Volatility in the U.S. stock market hit a four-year high on August 5, when the Standard & Poor’s 500 Index dropped by nearly 3%. Yet more than 97% of Vanguard retail investors held steady, placing no trades. Of the 2.5% of investors who traded on August 5, net buyers of equities outnumbered net sellers by more than four to one.
“Even in the face of dire headlines in the financial press, investors were far more likely to stay the course or buy at a discount than they were to panic sell,” said Thomas De Luca, a senior researcher in Vanguard Investment Strategy Group. “Discipline in the face of volatility is encouraging because it’s one of the most important factors that predict long-term investment success.”
Investors not panicking, instead taking advantage of market swing
Source: Vanguard, as of September 2024.
Vanguard’s Investor Research & Insights team has been collecting Vanguard investor expectations for U.S. stock market returns and U.S. GDP growth since February 2017. The survey runs every other month, in February, April, June, August, October, and December. A special survey was conducted in March 2020 during the pandemic-induced market crash.
The survey poses 13 brief questions about U.S. stock market and economic growth expectations to a random sample of about 2,000 Vanguard personal and 401(k) plan investors. It is conducted in partnership with academic researchers Stefano Giglio of the Yale School of Management, Matteo Maggiori of the Graduate School of Business at Stanford University, and Johannes Stroebel of the Stern School of Business at New York University.
The survey respondents are a random sample of U.S.-based Vanguard investors invited by email to participate. About 80% of the sample is drawn from our personal investor clients and about 20% from participants in employer-sponsored defined contribution retirement plans. To be included, investors also must have opted in to receive Vanguard statements by email, be over age 21, and have total Vanguard assets of at least $10,000. Overall, this sample group holds about $2 trillion in assets at Vanguard. We receive responses from investors in each period the survey is conducted.
The responses may be of use to advisors, plan sponsors, researchers, and other investors wishing to gauge current sentiment among individual households and calibrate clients’ thoughts compared with the market.
The Fear and Doubt Index is a proprietary Vanguard index based on the bimonthly investor survey we conduct.
Note: All investing is subject to risk, including possible loss of the money you invest.
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