Investors remain optimistic despite growing economic concerns: Morgan Stanley

But how will changing expectations of a soft landing impact portfolio management?

US investors remain generally positive about the outlook for their investments despite several significant concerns about the state of the economy.

Morgan Stanley Wealth Management’s latest quarterly individual investor pulse survey for the second quarter of 2024 reveals that most respondents (60%) remain bullish, roughly in line with the previous three month period.

But they are growing increasingly concerned about the economy with only slightly more than half saying they are confident that the Fed will be able to navigate a soft landing, down 7 percentage points from the first quarter survey.

There is also increased concern about both inflation – 53% said this is their top concern, up from 49% in the first quarter – and the election with 31% saying they are uneasy about it, up from 26% I the previous poll.

However, all of this cautiousness is not about to prompt major changes in portfolio construction with 50% saying they do not plan to make any changes to their portfolios over the next six months. In the previous period, just 42% were planning to maintain current allocations and strategies. Only 10% said this time that were considering moving to cash from their current positions, down slightly quarter-over-quarter.

IT (especially AI), energy (given rising oil prices), and health care are the top industry focuses of poll participants.

“The US stock market is coming off one of its strongest first quarters of the past 20 years, and so it should not be too large a surprise to see it pull back,” said Chris Larkin, managing director, head of trading and investing, E*TRADE from Morgan Stanley. “Yet despite economic uncertainty amid the revised pace of rate cuts for the year, along with uncertainty around the 2024 election, investors remain optimistic about the market.”

AAII POLL

A separate survey from the American Association of Individual Investors also shows enduring market optimism.

The AAII Sentiment Survey for this week shows bullishness at 38.3%. But while this is above the 37.5% historic average for expectation of stock prices rising over the coming six months, it is down 9 percentage points from last week.

Bearishness has increased this week with 34% of respondents expecting stock prices to fall over the next six months. This is almost 12 points higher than last week, 3 points above the historical average, and the highest since early November 2023. Neutral sentiment is around 28%.