Retail Investors Are Not Happy. Not at all.

We have been tracking Google search trends for “Stock market” in the recent market turmoil and have an update on this analysis today.

Our approach to using this data is to track when Google users query for “Stock market”, especially at hours where they are not typically interested in market activity. Like searches for “Weather” and “news”, individuals tend to search for “stock market” first thing in the morning (6-9am local times). High search volumes around the close (3-5pm Eastern Time) tend to indicate unusual concern and, often, a difficult open the next day and/or a volatile session overall.

That is exactly what happened last Monday (the 5th), for example. Search volumes peaked at 4pm, and Tuesday saw a deeply discounted open.

The close on Thursday (the 8th) saw another spike in Google searches. While Friday’s open played out calmly, intraday volatility peaked between 1-2pm and coincided with another spike in search interest.

How close are we to driving retail investors out of US stocks given the persistent volatility? A core group will, of course, remain fully invested. Many others may choose to lighten up. The marginal owner – one perhaps that was late to the party – may well be close to exiting all together, however, worried about future price gyrations.

The short answer is that we may be close to peak searches for “stock market”, an important sign for both volatility and market direction. Here’s the data:

• If current search trends persist through the end of February 2018, Google’s data shows that this month will top searches for “Stock market” from all the way back during the Financial Crisis.

• By way of comparison, the volume of Google searches for “stock market” are running +60% over those of October 2008. Now, the rest of February will have to see similar interest to the first half of the month to make that comparison official. But even if interest trails off, we should still see a new high in terms of searches this month, besting October 2008.

If you want to invest around this signal as a sentiment indicator, a word of warning: peaks in Google search volumes do not always line up with market lows. The deeper the crisis, the longer they lead. And while the current market volatility does not yet have a 2008-style crisis to shove it along, the search volumes for “stock market” are actually higher than a decade ago.

Our take: Google search data tells an under-appreciated story about the current equity market decline and near term volatility trends. Retail investors are very worried. A quick recovery in prices may help calm them, but if volatility remains they will likely move to the sidelines over the next few months. If history is any guide, that will be the low. But we’re not there yet.