Confidence among affluent investors was already slipping before the stock market rout in China sent US markets plunging last week and on Monday, according to a monthly index calculated by Spectrem Group, a Chicago-based research company. Yet when stocks do hit bottom and begin to rise, many of those unconfident investors will be on the sidelines, unwilling to risk a return to the markets. Based on past trends, even if markets come roaring back, investor confidence is likely to lag for months, said George Walper, president of Spectrem.
The latest readings of the gauge, the Spectrem Affluent Investor Confidence Index, come from the weekend of August 14-16
and show a jump of nearly 30 percent in concern about the economy - domestic and international. The investors surveyed, with assets ranging from $500,000 to $25 million, were also significantly more worried about their own personal outlook.
Confidence on the Spectrem index was at its peak almost exactly one year ago and had been relatively stable until this month. Most of the investors at the beginning of the year were expecting an up year - with only 4 percent predicting the Dow Jones Industrial Average would be below 17,000; it hit a low of 15,370 on Monday.
With the next index measurement in mid-September, Walper expects investors still to be rattled, especially those with less than $1 million in investable assets.
"Clearly this is the beginning of multiple months of concern, even if the market recovers. The number will not rapidly go up," he said. "If the market continues to go down, it'll be even more magnifying."
Investor opinions about how things are going in the world affect not only whether they buy or sell stocks, but also whether they hire new workers for the companies they own or when they will retire, driving economic conditions in the US for years.
One major effect of low confidence is that people tend avoid stocks, despite all the investing advice about buying the dips. "We don't see a lot of folks in this population to take advantage of downside to buy back," Walper said.
There can be even more blowback when investors see statements for 401(k)s, IRAs and other investment accounts.
"Some people turn off their 401(k) contributions immediately. They say I'm not going to put any more in," Walper said.
But the long-standing advice on market dips is to stay the course, and to keep buying while prices are low. "If you continue your automatic contributions, and not turn things off, one of the benefits is that you continue to buy," said Stuart Ritter, senior financial planning analyst at T. Rowe Price.
During the last big market dip, in 2011, 98 percent of T. Rowe's 401(k) clients stayed the course and did not make a transaction. Phone call volume goes up, which means people are having an emotional response, but then, Ritter said, "they're doing what they should do, which is stick to their plan."