Americans Are Losing Faith in the Stock Market

NEW YORK (MainStreet) — Almost 60% of Americans think the stock market is rigged and have lost faith in the nation’s financial markets. Another 44% say they’ll never put money in the stock market. And that’s just one study from Prudential.

A second study from the Kellogg School at Northwestern University says that only 20% of Americans trust the U.S. financial system – the lowest number since 2009.

Why the decline in trust in American financial institutions – and what does it mean to consumers and to the U.S. economy? Without using the exact terms, confusion and anger seem to be paramount among investors, who are simultaneously ticked off at Wall Street but also unsure how to proceed with their retirement investing in today’s toxic economy. Prudential says that 72% of survey respondents say they need to “think differently” about planning for retirement – a risky sentiment in volatile financial markets, Prudential says.

“These findings are consistent with what we’re seeing in the marketplace,” says Judy Rice, president of Prudential Investments. “Mutual fund investors are beginning to behave much more like institutional investors and are just as focused on managing risks as they are on generating good returns. As a result, they are looking to real assets and market neutral and fixed income products to protect against the threat of inflation and market volatility.”

The Northwestern study says that, in particular, faith and trust in banks and mutual fund companies are in deep decline.

The Kellogg study authors, Professors Paola Sapienza and Luigi Zingales, assert that the decline in trust could be linked to the Fukushima Daiichi nuclear plant disaster last spring. The study authors say the stock market decline could be traced to the incident, and that could have fed more doubts to investors.

But the Japan tragedy wouldn’t explain why trust in banks fell from 43% to 32%, according to Kellogg, or why trust in mutual funds was already at a low 31%, before it slid further to 25%.

“The latest findings show how fragile and temperamental the country’s financial system is right now, even as we slowly climb out of the recession,” says Zingales. “This drop in trust offers some insight into how global catastrophes can affect Americans’ trust in the financial institutions where they invest their money.”

The mistrust among Americans toward Wall Street goes way beyond the Japan earthquake, as devastating as that was. But like the earthquake, it could take years for Wall Street to dig itself out of the mess it has made with regular Americans.

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