Rate cuts are the boost that retail investors are seeking right now

Retail investors are growing more optimistic but may be taking a more conservative approach to their investments amid ongoing concerns about market volatility.

The share of bullish investors climbed to 61%, a 12-point increase from Q2, when bearish sentiment dominated, according to the latest Morgan Stanley Wealth Management quarterly retail investor pulse survey.

The poll was conducted from July 1 to July 16 of 2025 among a mix of advised and self-directed investors and found that 58% of respondents now believe the US economy is strong enough to support Federal Reserve rate cuts, up 10 points from the previous quarter.

However, inflation remains the top concern, cited by 39% of respondents, down slightly from Q2, while tariffs (33%) and market volatility (24%) round out the top three investor worries.

Interest in international markets continues to build. Amid global uncertainty, 58% of investors are exploring opportunities outside the US, reflecting a four-point rise and growing demand for geographic diversification.

“Amid tariff and geopolitical uncertainty, we’re still seeing the stock market rallying to all-time highs,” said Chris Larkin, Managing Director, Head of Trading and Investing, E*TRADE from Morgan Stanley. “While headwinds may be on the horizon, investors are holding their ground in sectors like tech and financials, while also looking abroad for new investment opportunities.”

Tech remains the favored sector, with investor interest rising to 57%, up nine points from Q2. Energy holds steady at 43%, retaining its position as the second most popular sector amid persistent oil market volatility. Financials moved into third place at 35%, supported by strong performance in consumer finance and a robust six-month stretch for the sector within the S&P 500.

Another barometer of investor confidence, the CNN Fear and Greed Index was in ‘Extreme Greed’ territory with a score of 75/100 as last week ended. The index has fluttered between positivity and neutrality since it hit an ‘Extreme Fear’ reading of just 4/100 in April 8 following Trump’s tariff announcements.

A further sentiment reading from the AAII shows that, while bullishness remained above its historic norm of 37.5% last week (at 39.3%), it declined by around 2 percentage points while bearishness increased more than three points to 39.0%.

The sentiment survey’s bull-bear spread (bullish minus bearish sentiment) decreased 5.5 percentage points to 0.3%. The bull-bear spread is below its historical average of 6.5% for the 23rd time in 24 weeks.

More than 38% of respondents to the AAII poll said they have become at least somewhat more conservative with their investing recently while 26% have made only modest changes overall.