Small investors fight the urge to sell as stocks drop
New York - January's global sell-off in stocks has left many small investors more puzzled than panicked - and unsure how to act.
They're holding on for now as prices continue to tumble, but their anxiety is mounting. The number of small investors who say they feel "bearish" soared this past week, according to a U.S. survey. Some stock funds have been hit with their biggest withdrawals since 2012.
If more people start selling, it would reverse a new and surprising trend in some of the world's biggest economies: individuals moving back into stocks after years of shunning them.
"I don't know what to do," says Ken Duska, a retiree in Mingo Junction, Ohio, who is sticking with his investment plan for the moment, though he's not sure that's wise. "After (the) upswing last year, it probably isn't going to continue."
Small investors around the world were on edge even before growing signs of a slowdown in China and plunging emerging-market currencies dragged some stock markets down to their worst start of a new year since 2010. They were worried that stocks had climbed too fast, and were overdue for a drop, after soaring by double-digit percentages in countries like the U.S., Japan and France in 2013. In the U.S., some stock bulls had been bracing for a drop of 10 percent or more, known on Wall Street as a correction. That hasn't happened in more than two years.
Now, with the Dow Jones industrial average down 5 percent from a recent peak, one is closer at hand.
"The question is, 'Is this all of it, or is there significantly more to come?"' says Greg Sarian, a managing director at the Sarian Group at HighTower, a wealth advisory firm in Pennsylvania.
Anxiety has ramped up in Asia, too.
"Clients were very worried as they haven't seen such market jitters in a while," says Lee Young-hwan, a private banking consultant at Daishin Securities Co. in Seoul, South Korea. Still, he says that many are more inclined to snap up stocks now at lower prices, than to bail out.
Since the 2008-2009 global financial crisis, small investors have mostly dumped stocks. But recently, buoyed by strengthening economies in the developed world, they have crept back into the market in some countries.
In the final four months of last year, nearly $100 billion flowed into stock mutual funds in seven big economies tracked by Lipper Inc., a fund data provider. The countries are the U.S., which accounted for much of the buying, as well as Japan, Germany, France, the United Kingdom, Canada and South Korea.
Now, that flood of money might reverse as investors grow more worried.
At the start of the year, more than twice as many U.S. investors said they were bullish on stocks than said they were bearish, according to a survey by the American Association of Individual Investors. Now, the bears and bulls are neck and neck, with sentiments yo-yoing along with the indexes.
"I've lost ... maybe $50,000 in the past week, and I'm not happy about it," says Scott Woodall, 44, of Acworth, Ga. "I hate the stock market."
The global tumble started more than a week ago after China reported economic growth had slowed and a key manufacturing measure suggested that sector was contracting. Stocks dropped in developing countries, along with their currencies, on fears exports of iron ore, soybeans, electronic components to China would plunge.
Adding to the emerging-world woes were some homegrown problems - double-digit inflation in Argentina, for instance, and a corruption probe in Turkey that threatens to destabilize the government. Then, on Wednesday, the U.S. Federal Reserve announced it would be pulling back even more from its bond-buying program.
That had pushed U.S. interest rates to record lows, and sent investors to emerging markets in search of higher yields. Now the tide of cash has reversed, hammering those economies as investors pull money out.
A sign of the times: The price of gold, considered the ultimate "safe" asset by fearful investors, is up 3.3 percent this year after plunging 28 percent in 2013. Investors are also buying U.S Treasury bonds despite Federal Reserve moves to scale back its purchases of them. The yield on the benchmark 10-year note, which falls when prices rise, has dropped from 3 percent at the start of the year to 2.7 percent, a big move.
There were other signs Friday that fear might be spreading.
In the U.S., the Standard and Poor's 500 index, a broader measure than the Dow, was down 0.5 percent in afternoon trading, on track for a fifth loss in seven trading sessions. That said, the index is well shy of a correction. It is down 3 percent from its record close on Jan. 15,
Stocks in Germany were also falling on Friday, with the country's DAX index down 0.5 percent, despite a strong economy and a low unemployment rate.
So far, some small investors seem willing to ride out the storm, though they don't sound too happy.
Leighanne Franklin, a mental health therapist in Greenwood, N.Y., wonders whether U.S. stocks are "just another bubble." But she is adding to her retirement account anyway, partly because she doesn't want to miss out on matching funds from her employer. "It's better than putting it in a savings account," she says.
Eric Rogers, a home builder in Independence, Ore., says stocks are "inflated," and that he isn't surprised that trouble in emerging countries has pushed the market down.
Still, the 44-year-old is holding onto stocks in his IRA, figuring he can ride out any drops over time.
"It'll be wonderful for me in 20 years," he says, "but right now ... I can't touch it."
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