American Investors in the Fog about 2013 Stock Gains

The good folks with more than $1

The American public is astute about a lot of things, but the stock market – despite all the hoopla in the media and even on NPR – apparently isn’t one of them. That’s what the Wells Fargo/Gallup Investor and Retirement Optimism Index survey found.

And it raises some thorny issues about the Fed’s strategy to print a few trillion dollars and force interest rates down to near zero in order, as it said, to inflate stocks and other financial assets, thereby triggering the “wealth effect,” which would stimulate the Main Street economy. This is, of course, precisely what has not happened. And the American investing public just told us why.

The survey asked American investors with $10,000 or more in stocks, bonds, mutual funds, or in a self-directed IRA or 401(k) – so not the entire American public but only those who have a stake in the markets – to comment on a number of basic topics, but here’s the one that stuck out the most:

As far as you know, how did US stocks perform on average in 2013 – did they increase in value, stay about the same, or decrease?

(If increased): Which of the following do you think comes closest to the overall increase in the US stock market in 2013 – was it up 10%, 20%, 30%, 40%, or 50%?

It so happened that in 2013, the S&P 500 chalked up a total return, including dividends, of over 32%. It was the most phenomenal year since 1997, when it had zoomed up 33%. So it’s not exactly a common event. And it should have entered into the consciousness of the investing public who’d presumably benefitted from it. But it didn’t.

A mere 7% of the investors got it right.

0,000 in the markets just explained why the Fed’s wealth effect is bogus.