November 19, 2007

Tracking the Traders

A Look at the Buyers and Sellers Who Make the Stock Market Go Up and Down

by James Albrittain, Jr, Pew Research Center for the People & the Press

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In recent months, the U.S. stock market has seen record highs coupled with dramatic sell-offs, its volatility fueled by the sub-prime mortgage and credit crisis, the weak dollar, and oil prices heading toward $100 per barrel. At the same time, the public has grown increasingly worried about the state of the U.S. economy.

Yet these fluctuations have a direct impact on only a limited number of Americans. Nearly half of adults nationwide (46%) say they don’t have any money in the stock market. And among the half who say they do, the vast majority (43% of Americans overall) say they have some long-term investments like retirement accounts but don’t trade stocks regularly. Only 7% of Americans say they trade stocks and other funds pretty regularly.

Who Are the Active Traders?

Not surprisingly, household income is closely tied to market participation. A plurality of regular traders (38%) reports an annual, pre-tax, household income of $100,000 or more — an income level reached by only 15% of the general public. Among those with only long-term investments such as retirement accounts and bonds, that they do not trade regularly, 23% earn $100,000 or more, 37% earn $50-$99,999, and 30% earn less than $50,000. Two-thirds (66%) of those who have no money invested in the stock market report a household income of less than $50,000.

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With retirement in the far future and thoughts of long-term financial security not an immediate concern, it may not be surprising that younger Americans are generally less likely than older Americans to trade stocks and other funds pretty regularly. According to the U.S. Census Bureau, roughly one-fifth (21%) of adults nationwide are between the ages of 18 and 29. But only 12% of Americans who report trading stocks and other funds pretty regularly fall within this age range and they comprise almost a third (31%) of the adult population without any money in the stock market.

About half (48%) of regular traders and four-in-ten long-term investors (42%) are college graduates, significantly higher percentages than the proportion of college graduates among the general public. Of those without any money invested in the stock market, 64% have no more than a high school education.

Non-Hispanic whites are also slightly overrepresented among regular traders and those with long-term investments. While non-Hispanic whites make up roughly 72% of the American population, 76% of regular investors and 80% of long-term investors are non-Hispanic whites.

In addition, men as well as people who live in the suburbs and in the Northeast are among the most likely to trade stocks and other funds pretty regularly.

Investors and Politics

While Democrats outnumber Republicans nationwide by a 34%-to-26% margin in Pew’s most recent surveys, regular traders lean the other way. Four-in-ten Americans who trade stocks regularly identify themselves as Republicans while only 24% are Democrats. Long-term investors are evenly split (31% identify with each political party). Those with no money in the stock market are more likely to be Democrats by nearly two to one (39% to 20%).

The partisan difference between regular traders and non-traders is not merely due to income differences. Among regular traders who earn $100,000 or more annually, 47% identify as Republicans and just 20% as Democrats. However, among those with comparable incomes but no money in the stock market the partisan split is roughly equal: 31% identify as Republicans and 27% as Democrats.

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In a hypothetical general election matchup, Hillary Clinton holds a modest 8-percentage-point lead (51%-43%) over Giuliani among registered voters nationwide. But regular traders favor Giuliani by a substantial 20-point margin (56%-36%). The former New York City mayor holds a slimmer 50%-to-45% advantage among long-term traders.

What puts Clinton in the lead overall is her overwhelming support among the nearly half of Americans with no money in the stock market. By nearly two-to-one (61% to 32%) this segment of the electorate favors Clinton over Giuliani.

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In the primary elections, however, stock traders’ preferences are not all that different from the views of the rest of the country. If anything, the current frontrunners in both the Democratic and Republican primaries hold even larger leads among regular traders than they do nationwide. Among regular traders who are registered to vote and who identify themselves as Republicans or lean Republican, a 40% plurality names Rudy Giuliani as the candidate that they would most like to see win the GOP nomination. Mitt Romney, a candidate with a strong business and investment background, was favored by just 10% of both Republican and Republican-leaning registered voters overall and those among them who trade stocks and other funds pretty regularly.

Nationwide, Hillary Clinton is backed by 44% of Democratic and Democratic-leaning registered voters in Pew’s September and October surveys, placing her well ahead of Barack Obama (25%). That lead is still greater (52% vs. 26%) among Democratic and Democratic-leaning registered voters who trade stocks and other funds pretty regularly.