WSJ Your Money Briefing - Why Investors Are More Pessimistic About Stocks Now Than Recent Years

Episode Date: February 24, 2025

The percentage of individual investors who expect stock prices to fall over the next six months reached the highest level since November 2023, according to the latest survey from the American Association of Individual Investors. Wall Street Journal reporter Hannah Erin Lang joins host Ariana Aspuru to discuss what this uncertainty in the stock market could mean for your investments.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Americans love using their credit cards, the most secure and hassle-free way to pay. But DC politicians want to change that with the Durbin Marshall credit card bill. This bill lets corporate megastores pick how your credit card is processed, allowing them to use untested payment networks that jeopardize your data security and rewards. Corporate megastores will make more money and you pay the price. Tell Congress to Guard Your Card because Americans lose when politicians choose. Learn more at GuardYourCard.com. Here's your money briefing for Monday, February 24th. I'm Marianna Aspuru for The Wall Street Journal. Trade war threats, stubborn inflation, and dwindling expectations for additional interest

rate cuts have turned some investors bearish in 2025. It's a reflection of just a lot of uncertainties that are floating around right now. And investors are still digesting all of that and trying to figure out what will end up having a durable impact on American companies and markets. We'll talk with Wall Street Journal reporter Hannah Erin Lang about how investors can navigate this wait and see period. That's after the break. Wealthsimple's Big Winter Bundle is our best match offer yet. Get a 2% match when you transfer over an eligible RRSP.

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Learn more at wealthsimple.com slash match. Investors haven't felt this pessimistic about the stock market since 2023. So where does it go from here? Wall Street Journal reporter Hannah Aaron Lang joins me. Hannah, when we talk about individual investor sentiment, what do the numbers tell us? The American Association of Individual Investors does this survey each week where they ask investors whether they expect stock prices to go up or go down over the next six months, and they report the level of bearishness and bullishness.

Earlier this month, we actually saw bearishness, or investors who expect stock prices to go down, shoot up to 47.3%, which was the highest level in a while since 2023 and what are the main factors contributing to this gloom? It's interesting. I mean, I don't think that we should interpret this result as investors going totally sour on the stock market gets a reflection of Just a lot of uncertainties that are floating around right now We had this deep seek tech route in January that shook confidence in some of those leading artificial intelligence stocks. We've had persistently stubborn inflation.

It's raising questions about the time and size of potential interest rate cuts. And we've had this blizzard of headlines coming out of the Trump administration on immigration, on trade policy, on reshaping the federal workforce, and investors are still digesting all of that and trying to figure out what will end up having a durable impact on American companies and markets. Yeah, how does that uncertainty in the economy manifest in the stock market?

What do we see investors do here? One thing we've seen is a pause or even a pullback in the money that investors are pouring into stock funds. And we saw a lot of dollars flow into equity funds in the last two months of 2024. And when it comes to individual investors, I spoke with a few of them for this article. And this can look like moving some funds out of growth-focused stocks into maybe value and dividend-focused stock funds, you know, more cautious picks, for example. And I spoke to another investor who was planning on just to hold on to some more cash.

And in a lot of ways, this could just look like pressing pause. I want to dive into one of the things you mentioned in your story, which is the possible impact of tariffs by President Trump, which some economists say could make the market worse. How is this influencing investors? This is a source of a lot of uncertainty for investors right now. When the first kind of large announcement about tariffs came out of the Trump administration about Mexico and Canada, that really rattled markets at first.

Eventually those tariffs got delayed and markets sort of got their footing again. But it left a lot of investors wondering where this policy would go from here. And another factor contributing to this wait and see, as you're describing it, is that we haven't seen strong indicators from the Federal Reserve of any more rate cuts soon.

How does that shift investor thinking? Investors and economists had expected about two or three rate cuts from the Federal Reserve over the course of 2025. And we recently saw this kind of warmer than expected CPI report that cast some doubt on that. And there's also concern from economists that some of the policies that Trump is proposing, possibly limiting the labor supply through immigration enforcement or implementing some of these tariffs, could be inflationary in nature, which would factor into the Federal

Reserve's decision on whether or not to cut interest rates. Once again, it's difficult to tell what will stick here, but the two to three rate cuts that folks have been expecting, there's now some doubt being cast there as well in terms of when those will happen, how large they might be, and if investors are going to end up getting what they expected. And all of this uncertainty, I hate to throw the word again, uncertainty, but all of this in the market is leading to, we were talking about bearishness, people not really having a very optimistic outlook right now. Is this

pessimism a bad sign? So I wouldn't say that rising pessimism is always a bad sign. Some investors use the AAII survey as a contrarian indicator, meaning they'll sell when bullish sentiment is high or buy when bearish sentiment goes up. The way I've heard this moment described by many analysts and investors is we're in wait and see mode. This is all to say I don't think bullishness has completely disappeared and I don't think investors have fully turned their back on the stock market.

And there are pieces of the market that investors are still very bullish on. But I think in general, there's a lot of folks asking a lot of questions and maybe in a bit of a holding pattern as they see where the economy and markets go more generally. Going forward, how could this gloomy, pessimistic outlook affect the broader market? It's going to place a certain amount of attention or pressure, as I mentioned, on things like

economics reports, the jobs report, inflation report. I also think that as we see Trump's policy agenda evolve, it will take some time, but as we see which impacts will last and how they're showing up in the data, that could determine which way investor sentiment ultimately leans. In addition to that, stock prices are really high right now and valuations have been elevated for quite a while. In the coming earnings season, we'll see focus on those reports. Are these valuations justified? Which way will the market eventually go as a result of all these questions that are still up in the air?

I wouldn't take this as a sign to completely rearrange your whole portfolio. But you know maybe this is an opportunity to look at some of the data that's out there and reevaluate how comfortable you are with your current allocation given some of these risks that we've discussed. Kind of taking a gut check. Where am I at? Yeah, a gut check is a good way to put it. That's Wall Street Journal reporter Hannah Erin Lang and that's it for your money briefing. I'm Arianna Aspuru for the Wall Street Journal reporter Hannah Erin Lang. And that's it for your money briefing. I'm Arianna Aspuru for the Wall Street Journal.

This episode was produced by me with supervising producer Melanie Roy. Thanks for listening. you