January Rally Tempers Fear Among Individual Investors, but Caution Remains

investopedia.com:

Call it the January Effect, the realization that interest rate hikes may slow, a growing sense that inflation may truly be easing, or all of the above, but individual investors are less scared than they were in early December, Investopedia’s latest reader sentiment survey shows. That said, nearly one-third of respondents expect the S&P 500 to fall at least 5% over the next six months, while only 16% expect it to trade higher, and 11% expect it to be flat.

The lack of outright conviction that the stock market will trend higher is also reflected in what investors tell us they are doing with their money. Only one in five respondents said they are investing more in the stock market, while 31% are investing less because they think stocks have further to fall. Forty-seven percent of respondents said they are continuing to play it safe by buying CDs and similar products, while only 11% are taking more risk.

While individual investors may still be cautious, their list of worries has changed over the past few months as inflation has subsided and the Federal Reserve has tempered its rate-hiking plans. While 66% of respondents say they are worried about a recession over the next 12 months, they are less worried about it than they were in early December.

Inflation worries have also subsided as consumer prices have fallen well below their June 2022 highs as the Fed has raised interest rates and consumers have changed their spending habits. Fifty-nine percent of respondents said inflation was their biggest concern, down from 70% in early December. Covid-related concerns are on the rise, however, up 9% since October, as new strains have proven to be very contagious.

While the prospect of a recession remains our readers' top concern,