US M-Generation Retail Investors Moving Opposite to Bull Market Trends

by Jo Youjin

Published 25 Apr.2023 09:59(KST)

Half of American millennials (M generation) reportedly made tearful stop-loss sales just before the stock market rebound in the fourth quarter of last year. Fearful of a bear market, these millennials hurriedly withdrew their investments right before the market turned bullish, missing out on the rally that surged early this year.

On the 24th (local time), Bloomberg cited a recent survey released by global consulting firm Ernst & Young (EY). EY surveyed 2,600 American millennials (aged 21-41) during October-November last year, when the U.S. stock market hit bottom, and found that half of the millennial respondents liquidated all their stocks just before the market turned bullish. Expecting further declines, millennials rushed to sell, incurring significant losses.

In contrast, only 34% of Generation X (aged 42-57) and 24% of Baby Boomers (aged 58 and above) respondents liquidated stocks just before the market turned bullish. While millennials exited at prices much lower than their purchase prices, increasing their losses, Generation X and Baby Boomers experienced relatively smaller losses.

Mike Lee, head of EY’s Global Wealth & Asset Management division, analyzed, “Baby Boomers, who received advice from financial experts, likely responded more calmly in a volatile market compared to millennials with shorter investment experience. Their investment decisions may have been influenced by having witnessed multiple market recoveries after sharp declines, such as the 2008 global financial crisis.”

[Image source=AFP Yonhap News]

Another factor driving millennials out of the stock market was the continuous decline starting from mid-August last year. The S&P 500 index, one of the major indices of the New York stock market, turned downward around mid-August amid rising interest rates and continued to fall daily. After a prolonged crash, it finally bottomed out on October 12 last year and has since rebounded nearly 20%. This was due to easing inflation and tightening expectations combined with hopes for China’s economic recovery. Bloomberg reported, “Millennials were more aggressively selling during last year’s downturn compared to other generations, likely causing them to miss the rally earlier this year.”

Funds withdrawn from the stock market are flowing into high-interest savings products such as money market funds (MMFs) and certificates of deposit (CDs). The deposit rate of 'Marcus,' an online financial platform launched by Goldman Sachs, the largest U.S. investment bank, is 3.9%, attracting millennials who favor high-interest savings products.

Experts believe that until there is confidence in a bullish market, it is unlikely that millennial funds withdrawn from the stock market will return. EY forecasts, “As market volatility continues, more investors will shift from stocks to savings and deposit investments.”