Investors were not overly aggressive in the past quarter since they were anticipating a turbulent economy ahead. However, they were optimistic that the economy will improve by year’s end.
Those were the takeaways of the latest Morgan Stanley Wealth Management pulse survey.
The quarterly survey, which included more than 900 investors, found that around 52% were quite bearish this past quarter, which is down by about 3% from the previous quarter. This is representative of the general trepidation many are feeling, as 89% anticipated that volatility would either increase or stay the same in the next quarter.
Inflation is still at the forefront of most investors’ minds. Despite positive signs, 64% still believe that it poses the greatest risk to their portfolios. This continues despite the fact that 55% believe inflation has peaked and is coming down.
The sharp and abrupt inflation spike was the most difficult thing for investors to handle, said Mike Loewengart, head of model portfolio construction for Morgan Stanley Portfolio Solutions. The U.S. economy has not seen rates like these for years.
“They feel that way because we are coming out of this extraordinary period of very low inflation,” he said. “These changes occurred so quickly for investors, and it's not like they really had time to adjust to it gradually.”
Recession was the second biggest concern for investors: 49% worried it could affect their portfolio, while 44% feared market volatility would. When it comes to a recession, there was limited consensus about whether the economy was already in one.
Only 40% of those surveyed said the economy is already there, which is about 5% less than the previous study found. For many investors, in particular the younger ones, a recession is a foreign concept, Loewengart said, since it’s been years since the last real one.
But the feelings of dread and recession symptoms are bad enough.
“Regardless of the official label, there are elements within the economy that could lead market participants to feel like we're already in it,” Loewengart said.
Even when the slump becomes official, he said, it’s part of economic reality, something investors should plan for and anticipate to dampen their own worries.
“It’s a part of our system and not something to be fearful of,” he said. “It is something that can be invested through.”
Advisors can use the latest pulse survey, which came out this month, to craft their message to clients, Loewengart said, and allay the clients’ worries.
“The best thing an advisor can do is instill confidence in the client to keep them invested,” he said. “They need to illustrate that the diversification that they put in place is working and demonstrate how advisors are positioning clients for future growth.”
While many surveyed are anticipating a rough year with a potential recession, inflation and volatility, there is significant optimism. Around 64% said that the economy will be in better shape by the end of this year, while just more than half (51%) believe the Federal Reserve can steer the recession into a soft landing.
Loewengart attributed this confidence to two things: The first is a strong and robust economy and the second is the faith investors have in the Fed to get inflation under control.
The online survey was conducted throughout January and included 906 investors who were either self-directed or worked with an investor (or both). The sampling size was broken into three groups, one having half a million dollars in investable assets, another with $1 million in investable assets, and the third having assets somewhere in between.