U.S. Stocks Are in a Bear Market, So Why Are Investors Buying?
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Here's your Money Briefing for Tuesday, November 22nd. And yet, many investors are turning away from overseas stocks. To them, U.S.-traded stocks are the only game in town.
There is definitely a lasting legacy of the U.S. 's outperformance. This cycle is going on its 12th year, and research shows going back to the 70s, typically that only lasts about eight years. So people have really grown accustomed to favoring U.S. stocks.
But how much in international equity should be in your portfolio? And what caution signs from the U.S. economy should investors be watching for? We'll ask our markets reporter Eric Wallerstein about that after the break.
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Why are investors still buying U.S. stocks despite a bear market?
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Rising inflation and the likelihood of higher interest rates have given Wall Street fits as of late, but that hasn't stopped investors from loading up on U.S. stocks. So what does that mean for your portfolio? Wall Street Journal markets reporter Eric Wallerstein has been tracking investors' sentiment, and he joins us with more. Hey, Eric, thank you very much for being with us. Yeah, thanks for having me, JR. So, Eric, it's been a pretty tumultuous year for the U.S. stock market. How much have U.S. stock holdings grown in 2022?
Investors have added $86 billion just to mutual funds and ETFs that hold U.S. stocks this year. It's not quite where we were last year. That was about $156 billion. But other than that, it's the most since 2013. So it's a pretty sizable amount given how far markets have declined.
But we're still in an economy that many say is teetering on falling into recession. What's attracting investors to U.S. stocks?
Yeah. So the interesting thing is, you know, the whole economy across the world is kind of in this darkened state. And the U.S., a lot of investors are crediting the labor market as holding up and being very robust, as well as consumer spending has still been hanging in there even as the Federal Reserve increases interest rates. So that relative strength to the rest of the world has really helped out. And then there's the strength of the U.S. dollar has also kind of buoyed stocks.
Now, you mentioned the Federal Reserve and interest rates. Anyone keeping a close eye on their stock portfolio or 401k has seen that the market can take sharp turns whenever the idea of higher rates enters the conversation. And the Fed has been quick to remind people that interest rates are likely to rise further well into next year. With respect to U.S. stocks, why wouldn't that give investors pause?
So it definitely has, and that's part of the reason that stocks are down so much this year. But we've seen this push and pull between investors and cooling inflation. At any signs that maybe price pressures are easing, they're really quick to jump in. Just a couple of weeks ago, we saw some of the best performances for the S&P 500 and the Nasdaq composite since the COVID crisis. So We're definitely seeing people bet that the Federal Reserve will pull back at some point.
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