Study: Investor Fears of Crash Could Actually Fuel Stock Market Performance

Recent survey data suggests that investor apprehension regarding a potential stock market crash could actually serve as a boost for stocks.

What Happened: The survey revealed that more than half of Americans anticipate an impending U.S. stock-market crash. Interestingly, this widespread fear may not necessarily increase the likelihood of a crash. On the contrary, it could suggest the opposite.

A Q1 2025 study conducted by Allianz Life found that 51% of participants expressed concern about a significant market crash in the near future.

This anxiety, however, is interpreted as a contrarian indicator, implying that the stock market tends to perform better when investor fears of a crash are heightened, compared to periods of relative complacency.

Backing this perspective, an analysis of survey data collected since 2001 by Yale University professor Robert Shiller suggests that the S&P 500’s total-return index generally outperforms following months where crash risk is perceived to be high.

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Despite the prevalent fear of a crash, research conducted by Harvard University finance professor Xavier Gabaix indicates that the actual probability of a stock-market crash occurring in the next six months is extremely low, at just 0.33%.

While this research primarily focuses on one-day market plunges, it’s crucial to understand that significant bear markets can transpire without the stock market experiencing any major one-day drops.

Therefore, the general consensus appears to be that investors should be more wary of a major bear market than a one-day crash.

Why It Matters: This study underscores the complex dynamics of investor sentiment and market performance. It suggests that widespread fear of a crash, rather than signaling impending doom, may actually serve as a contrarian indicator of positive market performance.

This counterintuitive finding highlights the importance of understanding investor psychology in predicting market trends. It also emphasizes the need for investors to focus on long-term market trends rather than short-term fluctuations.

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