Most Optimistic Despite Swings in Stock Market

The stock market’s wild volatility in recent months may just be a prelude to a bigger shake-up, many investors say.

Yet most of those already in the market say they have no plans to bail out. Moreover, more than 1 in 4 say they plan to increase their stock investments in light of the latest gyrations, a new national Times Poll shows.

The telephone survey of 1,502 people, conducted from last Thursday to Sunday, suggests the stock market’s worst dive since 1987 has failed to dent Americans’ faith in the market itself or in the U.S. economy.

Fully 84% of poll respondents described the economy as doing “fairly well” or “very well.” Of those who own stocks or stock mutual funds--about half of the 1,500 surveyed--92% said the economy is doing well.

“Just look around here,” said Katherine Roberts, a retired hospital worker in Santa Rosa, Calif., and a poll respondent. “People are spending money on big-ticket items like luxury cars, and there is a waiting list for any home at almost any price.”

And though there are signs that some sectors of the economy are slowing--in part because of surging interest rates engineered by the Federal Reserve--91% of poll respondents who own stocks said they have no plans to cancel or postpone spending plans because of the stock market’s fluctuations.

That optimism is perhaps more surprising given that a majority of respondents expects a more significant stock market shake-up ahead.

In light of the technology stock-dominated Nasdaq composite index’s drop of about 25% from its March 10 record high through last Thursday, the poll asked:

“Some people say the stock market is so high that some sort of shake-up is unavoidable. Some say that this shake-up has already happened, with the recent drop in the Dow Jones industrial average and the Nasdaq market, while other people say that the real shake-up ordrop is yet to come. Which comes closer to how you feel?”

A total of 55% of all respondents, and 58% of stock owners, said the shake-up is “yet to come.”

Just 22% of all respondents, and 29% of stock owners, said the shake-up has “already happened.” The rest weren’t sure.

In any case, 27% of those who own stock say they plan to increase their investment in the market “somewhat” or “substantially” in light of the market’s recent fall. The majority--67%--said they planned no change in their investment. Only 3% said they expect to decrease their investment somewhat or substantially.

Some investors, of course, have been unnerved by the volatility of recent months.

“I am not very confident in the market because of its recent behavior of going up and down and being very volatile,” said Xiao Lin, a research assistant at Harvard University in Cambridge, Mass., during a follow-up interview. “But since I don’t have a lot invested, I don’t worry that much.”

Economist Richard Rippe at Prudential Securities in New York said investors’ relative calm may be based on the judgment that the market’s recent fluctuations are more a matter of how people are valuing different groups of stocks--such as technology issues--than a statement about the economy’s prospects.

If the market started to drop because of problems with the economy, many would probably change their views, he said. “But what they see now is low unemployment, a strong job market and lots of people shopping in the malls,” Rippe said.

In addition, although the market has fallen sharply since March, that has simply erased big gains in many stocks in the early part of the year.

Year-to-date, the Nasdaq index is down less than 10%. The blue-chip Standard & Poor’s 500 index is down just 3.1%. And as of Friday, the average domestic stock mutual fund was still up 1.5% for the year, as gains in some market sectors have offset losses elsewhere.

As the Federal Reserve appears poised to raise short-term interest rates next Tuesday for the sixth time since June, most poll respondents--64%--said they believed that inflation wasn’t a problem, and that the Fed shouldn’t be raising rates.

But given a list of things that could pose a “serious threat” to the economy in the next 12 months, just 9% of all respondents cited higher interest rates.

Instead, more respondents named either higher unemployment (32%) or a stock market drop (21%) as the “most serious threat to the economy.”

In effect, respondents were naming the potential fallout from higher rates, rather than higher rates themselves.

Clearly, the health of the job market remains the prime economic litmus test for most people, including Howard Houtsma, a manager in a soybean processing plant in Sheldon, Iowa. “Things are good in this area,” he said. “The unemployment rate is down.”

On Friday the government said the U.S. unemployment rate was 3.9% in April, lowest in 30 years.

Yet even in boom times a surprising number of Americans report trouble paying off loans and other bills, suggesting that the economy remains divided between the haves and the have-nots.

Though 72% of all poll respondents--and 86% of stock owners--described their personal finances as secure, 27% of all respondents said their finances were “fairly shaky” or “very shaky.” (Only 13% of stock owners said things were “shaky.”)

More than a third, 37%, of all respondents reported some or much difficulty paying for installment loans, car payments and insurance premiums.

Not surprisingly, the people who have the most trouble making ends meet are the ones with the lowest incomes: 57% of those with household incomes of less than $20,000 are having difficulty with debt.

But two out of five men and women under age 45, and more than a fifth of households with income between $40,000 and $60,000, also reported difficulties making those payments.

And the overall 37% figure isn’t much lower than the 40% who responded similarly when asked the same question in a 1991 poll--when the economy was just coming out of a recession.

“This poll shows a glaring divide between those who are benefiting from the strong economy and stock market,” said Times Poll Director Susan Pinkus. “Americans earning less than $40,000 are finding it difficult to pay off their debt, feel shaky in their personal finances, [are] hardly investing and are not protected by 401(k)s. This is in sharp contrast to those whose households are earning more than $60,000.”

The poll had a sampling error of plus or minus 3 percentage points.

* POLL RESULTS

More results from The Times’ investor survey. C6

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Most See a Bigger Market Shake-Up . . .

Q. Some people say the stock market is so high that some sort of shake-up is unavoidable. Some say this shake-up has already happened with the recent drop in the Dow average and the Nasdaq market, while others say the real shake-up or drop is yet to come. Which comes closer to how you feel?

Yet to come: 55%

Already happened: 22

Don’t know: 23

*

. . . But Many Are Buying Anyway

Q. In light of recent fluctuations in the market, do you plan to increase your investments in stocks, decrease them, or make no change? (Asked of those who own stocks or stock mutual funds.)

Increase substantially: 6%

Increase somewhat: 21

Make no change: 67

Decrease somewhat: 2

Decrease substantially: 1

Don’t know: 3

*

HOW THE POLL WAS CONDUCTED: The Times Poll contacted 1,502 respondents nationwide, by telephone May 4 through May 7, 2000. Included in the sample are 874 respondents who own stock and/or stock mutual funds. Telephone numbers were chosen from a list of all exchanges in the nation. Random-digit dialing techniques were used so that listed and non-listed numbers could be contacted. The entire sample was weighted slightly to conform with census figures for sex, race, age, education and region. The margin of sampling error for the entire sample and for stockholders is plus or minus 3 percentage points. For certain subgroups the error margin may be somewhat higher. Poll results can also be affected by other factors such as question wording and the order in which questions are presented.

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Times Poll data are also available at http://ukobiw.net/timespoll.