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Investors Are Bullish, but Inflation Remains a Top Concern: Morgan Stanley Survey

By Michael S. Fischer

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Fifty-four percent of U.S. investors surveyed in the third quarter believe that inflation will reach normal levels by the end of 2023, up from 50% in the second quarter, Morgan Stanley Wealth Management reported this week.

The firm’s quarterly investor pulse survey found that the same percentage of respondents expect the Federal Reserve Board to navigate a soft landing, up from 47%, and 48% consider the economy healthy enough for the Fed to enact additional rate hikes this quarter, up from 45%.

More than half of respondents are bullish about the third quarter, with 58% believing the market will end in the green, 10 percentage points higher than last quarter.

Still, 52% of investors surveyed said high inflation is their chief concern regarding their portfolio, followed by 31% who said they worried about a recession and 26% about volatility. Nine in 10 respondents believe that volatility will increase or stay the same this quarter, a slight increase over the second quarter.

“We’re beginning to witness a slow shift happening in the investing landscape as we narrow in on the potential end to the Fed’s rate hike campaign,” Mike Loewengart, head of model portfolio construction for Morgan Stanley Portfolio Solutions, said in a statement. “But inflation is still very much a part of the conversation and should factor into long-term investing decisions.”

Loewengart said investors who moved into cash over the last year or two should consider the purchasing power risks.

“Investors are missing out on capital appreciation if they’re sitting on the sidelines, and most cannot time the market,” he said.

Dynata fielded the survey July 5-20 among an online U.S. sample of 909 self-directed investors, investors who fully delegate investment account management to financial professionals and investors who fall into both categories. A third of participants had less than $500,000 in investable assets, another third had between $500,000 and $1 million, and the final third had more than $1 million.

Sector Opportunities

The survey asked participants in which sectors they see investment opportunities this quarter. With artificial intelligence taking center stage, 51% of respondents said they are looking at technology, up from 42% who said so in the second quarter.

Forty-three percent expressed interest in energy, suggesting that investors may be hunting for bargains in this recently depressed sector, Morgan Stanley Wealth Management said.

Thirty-four percent of investors cited health care, a sector they typically view as a defensive play as they brace for a potential economic slowdown, according to the firm.

Here’s a rundown of respondents’ interest in other industries:

  • Real estate: 30%
  • Financials: 28%
  • Utilities: 25%
  • Consumer staples: 22%
  • Industrials: 18%
  • Communication services: 18%
  • Materials: 17%
  • Consumer discretionary: 14%

Credit: Adobe Stock

Michael S. Fischer

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