Market Crash Fears Are Real, but Individual Investors Are Still Buying
Key Points
The Iran conflict, inflation, and slowing growth concerns could all cause trouble for stocks in 2026.
Despite these growing risks, most investors expect more positive returns for the S&P 500 and plan to keep buying stocks.
However, investor's return expectations are surprisingly modest.
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The list of things that investors could worry about right now is long.
The Iran conflict pushed Brent crude oil prices above $100 per barrel for the first time since 2022. Inflation still remains well above the Fed's 2% target. Moody's chief economist Mark Zandi currently puts recession odds at around 49% based on worsening economic data and a slowing labor market.
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Therefore, it might be surprising to hear that the majority of retail investors plan to keep on buying stocks.
Source: Getty Images.
Retail investors aren't panicking yet
A new Motley Fool survey found that 58% of individual investors are planning to buy more stocks in 2026 despite recession and inflation worries. Only 4% of those surveyed plan on reducing their equity exposure this year.
Among the other findings:
- 68% of Gen Z and 64% of millennials plan to increase their stock positions in 2026, compared to just 46% of Gen X and 39% of baby boomers.
- 70% of artificial intelligence (AI) investors plan to buy more stocks in 2026, compared with 46% of non-AI investors.
- 57% of investors expected modest returns of 4% to 9% in 2026. Just 11% expect the market to return 10% or more, but only 3% anticipate a large decline of 10% or more.
What this means for investor sentiment
Talk of a recession is usually enough to scare investors, but they seem to be handling the risk relatively well this time around. Even though several indicators are trending in the wrong direction, gross domestic product (GDP) growth remains positive, the unemployment rate is under 5%, and S&P 500 earnings rose by at least 10% year over year for the fifth straight quarter. It's understandable why investors aren't panicking yet.
Younger investors are feeling less risk-averse, which probably shouldn't surprise many people. These are the generations that haven't experienced an extended recession and are more comfortable trading.
Throughout the 2020s, they've shown an affinity for meme stocks and leveraged products. The fact that they're more likely to be adding stocks to their portfolios aligns with that idea.
Despite this, investors seem relatively realistic about return expectations in 2026. Three straight years of double-digit returns for the S&P 500 usually leads to some over-bullishness. Just 11% of investors expect a fourth straight year of this, indicating some restraint in expectations. Just 3% of investors expect a 10% decline, which seems a little low.
We saw this in 2018, 2020, 2022, and 2025. With the geopolitical climate destabilizing and several key metrics heading in the wrong direction, it's not at all impossible that we could see another correction this year.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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