Thursday, August 21, 2014

What a Gallup Poll Tells Us About Equities

A lot of attention is being given to a Gallup poll showing that the general population is unaware of the bull market in stocks.  Only 24% knew the stock market had risen more than 20% last year. 30% said stocks were flat to lower last year.

Is their lack of stock market knowledge surprising?

It would be easy to poke holes at Gallup who famously called the comfortable victory for President Romney in 2012. But the Gallup poll on stocks is probably fairly accurate.

When polled, here are other things a third or so of Americans didn't know:
  1. The name of the world's largest ocean, to the west of California.
  2. The year 9/11 took place.
  3. The name of the country the American Revolution was fought against.
And a third or so believe:
  1. The earth is the center of the universe.
  2. Ford Foundation, Rockefeller Foundation and Monsanto are trying to shrink the world's population using GMO foods.
  3. Someone they know has been abducted by aliens.

According to Gallup, about 46% of US investors are optimistic about stocks. This is the same proportion that were optimistic in early 2011, before a 20% correction, and in early 2012, before a 10% correction (arrows). They were more optimistic in early 2013, the year when stocks did not have any significant pullback. Maybe their views are not contrarian. Or, more likely, this is just noise.

But the bigger point is this: there's no reason to use a poll by Gallup to infer how investors are allocated to equities. The Federal Reserve publishes this data regularly, the most recent is shown below. Their allocation is higher than at any time in the past 50 years save for the tail end of 1982-2000 bull market (chart from Short Side of Long).

More data on investors' sentiment towards, and allocation to, equities can also be found here. The overall picture is very consistent.