Bullishness is rising with rate cut expectations, reveals Morgan Stanley poll

Investors have increased confidence in rate cuts, soft landing for the US economy.

Investors are becoming more optimistic in the outlook for the U.S. economy and the market as expectation remains high that the Fed will cut rates and execute a soft landing in the months ahead.

Morgan Stanley Wealth Management surveyed 903 self-directed investors, investors who fully delegate investment account management to financial professionals, and investors who utilize both, conducted January 3-17, found that 60% are bullish in this quarter, a rise of 9 points from the previous quarter.

The same percentage believes that the Fed can execute a soft landing, up 7 points, and 58% think the economy is in good enough shape for a rate cut.

Inflation continues to lead investors’ concerns for their portfolios (49%) with the presidential election (26%) and recession (24%) completing the top three. Other concerns include market volatility (22%), geopolitical conflict (18%), and earnings (16%).

However, most respondents remain engaged with the market including 42% who do not plan to make any changes to their portfolios in the next six months, 26% saying they will make changes, 18% planning to put their cash to work with new positions, and 14% planning to exit current conditions and hold more cash.

“With the Fed broadcasting interest rate cuts in 2024, it’s not surprising to see traders reengaging with the market,” said Chris Larkin, Managing Director, Head of Trading and Investing, E*TRADE from Morgan Stanley. “That said, as we kick off the year with relatively muted stock performance, investors may need to be patient with when these cuts will actually take place. Economic metrics continue to be strong, so there may not be a huge rush from the Fed.”

LEADING INDUSTRIES

The pulse survey also asked investors about the industries they believe offer the greatest potential in the current quarter.

Information technology remains in the lead and gains 7 points quarter-over-quarter with 53% of respondents seeing the most potential in the industry, followed by energy (45%) which is considered to have underperformed last year, health care which is a key defensive sector (38%), real estate (29%), and financials (28%).