The average investor is a key indicator of the stock market. Typically, the average stock market investor stays invested during market declines. They do as pop culture finance tells them. They stay invested and ride the roller coaster. Well, it looks like things are changing for the average investor.
Through the week of December 12th, stock market investors sold the second largest weekly amount of stock mutual funds.....on record.
Now, let's put that into perspective. The market, since October, has not dropped -20% or -30%. The market has dropped a little over -10% at its worst. If you are a stock market investor, you should be able to stomach at least a drop of -10% to -20%. Those are NORMAL corrections. The average investor appears to be bolting!
What does that mean?
Well, the normal conclusion is that increased selling from a segment of the market that typically doesn't sell is not good. Selling begets more selling begets more, etc. An increase in selling is not what you want to see. There are two things that I have said from day one.
A -10% to a -20% drop is going to feel like a -30% to -40% to the average investor. The 2008 financial crisis is still very fresh on the investor's mind. The landscape has changed.
What will the average investor do when the market selling really gets going?