ORDINARY JOE — “Reset” Episode 108 — Pictured: Charlie Barnett as Eric Payne — (Photo by: Matt … [+]
Given the momentum we saw throughout 2024 — with the S&P 500 gaining more than 20% and Bitcoin gaining more than 100% — it makes sense that retail investors are bullish as we kick off 2025. But there seems to be a hesitancy among this group.
It took some reading between the lines, but “cautiously optimistic” seems to be the takeaway with retail investors.
That’s as they say they are bullish, but their actions don’t necessarily align with their rhetoric.
Retail Investors Say They Are Bullish…But Are They?
According to the Conference Board, a record number of investors said they were bullish on the stock market in November, with 57.2% saying they expect stocks to be higher 12 months later. That number dipped slightly in December to roughly 53%, and while there was clearly some euphoria working in the bulls’ favor following the election, it’s safe to say investors were feeling confident.
In late-November and early December, eToro conducted its quarterly retail investor survey, which had similar findings. (Note: These are retail investors in general, not necessarily eToro’s clients).
In that survey, 61% of respondents said they expected the bull market to continue in 2025. However, when asked specifically about how they were going to alter their allocations moving forward, that’s when we started scratching our heads a bit.
Despite a majority of retail investors stating that they are bullish, 55% of respondents said they are or were looking to increase their cash allocations — a clear risk-off move. At the same time, roughly two-thirds of respondents also planned to increase their crypto allocations, while 50% were increasing their stock allocation — a clear risk-on move.
Worries About 2025
There are other signs of cautious optimism when we look at the latest Michigan consumer data.
Consumer sentiment fell to 71.1 in its latest reading from mid-January, down slightly from a prior reading of 74. The previous reading was the highest sentiment figure since mid-April when it rang in at 79.4 — although both measures are down notably from the pre-Covid highs in February 2020 (101) and the post-Covid highs of 98.3 in May 2021.
Michigan consumer sentiment and consumer expectations reports.
Source: eToro, Bloomberg
When it comes to consumer expectations, the reading of 69.3 was the lowest reading since mid-August (you might remember this period after a big slump in investor sentiment and a big spike in volatility due to the carry-trade unwinding).
Like consumer sentiment, consumer expectations are up notably from the 2022 and 2023 lows, but are still well below the pre- and post-Covid highs. In other words, consumers and retail investors are more confident than in the recent past, but are still expressing some caution as we move forward into 2025.
So what’s weighing on them?
The Michigan one-year inflation expectation gauge recently came in at 3.3%, matching the highest readings seen in 2024. Even though one could make an argument that mild inflation is actually good for the stock market, the impact of high inflation from 2021 and 2022 still weighs on the consumer.
And for that matter, it still weighs on investors, too.
In eToro’s retail survey, they found that 24% of respondents cited inflation as the top concern for their portfolios in 2025. Admittedly, this reading was down from 30% in Q3 and only narrowly edged out “the economy” as the next-highest concern at 23%.
However, these studies underscore that inflation remains top of mind for retail investors and consumers alike.
Cash Isn’t Always Bearish
Despite raising cash, investors are bullish. For instance, more than 80% of retail investors expect the Magnificent 7 to perform in-line or better than the broader market this year (their favorite pick is Amazon, by the way).
Another? Roughly 60% of retail investors expect AI stock to move higher in 2025. However, just 22% of respondents had exposure to this group, which was down notably from 35% in the prior quarter. Why do a majority expect higher prices, yet less than one-quarter own the stocks? More so, why did retail investors sell in Q4?
What we may be seeing here is an opportunistic move to cash.
After back-to-back years of strong gains in risk-on assets, my between-the-lines takeaway is that retail investors were looking to raise cash while asset prices were high and hope to redeploy them on the dip sometime in 2025 — and those dips can be a big opportunity. That’s one way to remain bullish, but do something that contradicts that sentiment.
While these dot-connections could be wrong, retail investors have shown to be a resilient group with an appetite for opportunity. Although that doesn’t always make them right, it’s interesting to see how they’re cautiously but optimistically entering 2025.
