Morgan Stanley: Retail investors hold bullish line as inflation anxiety persists

Retail investors are starting 2026 with steady optimism, lingering inflation worries and a growing inclination to stay put, according to Morgan Stanley Wealth Management’s latest quarterly investor pulse survey.

The firm’s Q1 2026 survey, released today (Jan. 29), shows bullishness unchanged from the prior quarter with 56% of respondents describing themselves as bullish on markets, matching Q4 2025 levels, while 44% remain bearish. The consistency comes after a volatile market opening to the year and persistent geopolitical and policy crosscurrents.

Inflation continues to dominate investors’ financial concerns. Nearly half of respondents (47%) cite inflation as a top worry, widening its lead over other issues. Tariffs rank second at 27%, though concern there has cooled meaningfully from late 2025. Anxiety around a potential recession and the current administration both rose modestly, reflecting a complex policy and economic backdrop.

Expectations for near-term turbulence have eased, though most investors still anticipate choppy markets with 57% believing that volatility will rise in the coming quarter, down from 65% in Q4. Meanwhile, 35% now expect volatility to remain stable — a notable increase from the prior reading.

Perhaps most significant for advisors is that investors are increasingly opting for patience over action. A majority (52%) say they do not plan to make any portfolio changes in the next six months, up sharply from 41% last quarter. Fewer respondents plan to shift allocations, add new positions or move to cash — signaling a growing preference to ride out uncertainty rather than trade through it.

“As the year kicks off with a choppy market and continuing uncertain geopolitics, it’s encouraging to see investors stick to their investment strategies and play the long game,” said Chris Larkin, Managing Director, Head of Trading and Investing, E*TRADE from Morgan Stanley. “It’s important for investors to remember that the market doesn’t always go up and swings are normal. While they navigate potential bumps ahead, a disciplined investing approach will help them stay focused on their long-term goals.”

Sector preferences also offer insight into where clients may see opportunity. Information technology remains the top perceived growth area, with 60% identifying it as the sector with the most potential, buoyed by continued enthusiasm around artificial intelligence despite recent tech sell-offs.

Energy saw increased appeal, rising to 49% as data center power demand draws attention to infrastructure and supply themes. Health care sentiment remains elevated at 33%, reflecting its reputation as a historically defensive allocation. Other sectors drew mixed interest. Financials and utilities each registered 28%, while real estate slipped to 26%. Consumer discretionary remains the least favored sector at 9%.