The prevailing opinion of U.S. financial advisors is that 2020 stock market returns will be down at year end, but not nearly to the level that returns sank in 2008, according to the Natixis 2020 Financial Professionals Survey.
The 300 U.S. advisors included in the survey predicted 2020 full-year returns for the S&P will be down 3.6% and the MSCI World Index will be down 6.1%. The losses will not come close to those in 2008 when the S&P was down 37% and the MSCI World Index was down 40.33%, Natixis said.
The survey of U.S. advisors was part of a global survey of 2,700 financial professionals, including wirehouse advisors, registered investment advisors and independent broker-dealers, which was taken between March 16 and April 24. Globally, financial professionals expect the S&P 500 to be down 7% and the MSCI World Index to decline 7.3%.
In addition to advisors in the United States, those in France also have a less dire view of returns for the year. In other parts of Europe, advisors in Germany were the least optimistic, followed by Italy, Spain and the United Kingdom.
“Advisors in the US seem to be giving an initial vote of confidence to the swift and dramatic actions taken by Fed and Congress in response to the pandemic, as well as the resiliency of the US economy,” said David Giunta, CEO for the US at Natixis Investment Managers. “The dramatic rise in volatility underscores the important role that active managers and financial advisors play in helping their clients navigate uncertainty, capitalize on opportunities, and remain focused on their long-term investment goals during these unprecedented markets.”
According to the U.S. financial professionals, the market downturn, no matter how bad it turns out to be, is being driven by sentiment and not the underlying fundamentals of the market. U.S. advisors’ top concerns are market volatility, a recession and a geopolitical event. Twenty-five percent also cited the uncertain outcome of the U.S. presidential election as a portfolio risk.
“By comparison, U.S. financial professionals’ concern about rates was subdued” at the time of the survey, which coincided with the Federal Reserve cutting rates to zero to support the economy and calm the markets during the coronavirus pandemic, the report said. Twenty-two percent were concerned about low yields and 18% about interest rates.
“The market downturn – and expected recovery – serves as a lesson in behavioral finance, even if learned the hard way through real losses and missed goals,” said Dave Goodsell, executive director of Natixis’ Center for Investor Insight. “Investors got a glimpse of what risk looks like again, and it’s a teachable moment. Financial professionals can show their value by talking with clients in real terms about risk and return expectations, helping them build resilient portfolios and how to keep emotions in check during market swings.”
Even if the picture is not as bleak as the public believes, 76% of financial professionals said investors were unprepared for a market downturn, and 79% said investors forgot that the long bull market that was ended by the pandemic was unprecedented.
Forty-six percent of financial professionals said the market was overvalued prior to the downturn, 48% felt that clients resist portfolio rebalancing in an up market, and 80% of said investors are too focused on short-term investment results.