Investors Still Bearish, but With Glimmer of Hope: Morgan Stanley

Fifty-two percent of investors say they are bearish this quarter, down slightly from last quarter, and 89% expect volatility to continue or increase during this period, according to Morgan Stanley Wealth Management’s latest quarterly investor pulse survey, released Tuesday.

Although 55% of participants think inflation has peaked and has started to slow, 64% still consider it the main risk to their portfolio. Forty-nine percent said a possible recession is the top risk, and 44% cited market volatility.

Forty percent of respondents said the economy was in recession, down 5 percentage points from the fourth-quarter survey.

Amid this angst, glimmers of optimism appeared in the responses. Fifty-one percent of investors said the Federal Reserve will be able to steer the economy into a soft landing, and 64% expect the U.S. economy to be in better shape than it currently is by year-end.

“It’s been a challenging market environment as investors navigate through high inflation, geopolitical concerns, and recession fears,” Mike Loewengart, head of model portfolio management for Morgan Stanley Portfolio Solutions, said in a statement. “While these challenges aren’t likely to disperse anytime soon, it’s important for investors, where appropriate, to remain committed to their plan and consider the diversification of their portfolio.

“Moving money to the sidelines may sound tempting, but for investors with a lengthier time horizon, staying the course may be beneficial in the long run.”

Dynata administered the survey from Jan. 3 to 23 among an online U.S. sample of 906 self-directed investors, investors who fully delegate investment account management to financial professionals and investors who use both. The panel included those with investable assets of less than $500,000, between $500,000 and $1 million, and more than $1 million.

Sector Opportunities

The survey asked investors in which sectors they see opportunities this quarter. Half of respondents expect the volatile but top-performing energy sector to be the most attractive amid hopes for a rebound by China and geopolitical concerns.

As they strive to bolster their portfolios, 40% of investors see opportunity in the historically defensive health care sector.

More than a third of investors think they see a bargain opportunity in the IT sector, where rising rates typically weigh on tech stocks and their valuations.

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