RIAs felt more optimistic about the economy and stock market following the US election in November, a new study showed.
But a number of financial advisors warn against confusing increased confidence with complacency in 2025.
According to the latest RIA Economic Outlook Index from Security Benefit, RIA sentiment surrounding economic conditions from a range of 0 (extremely pessimistic) to 100 (extremely optimistic) rose to 56 in the final quarter of 2024 after falling to 53 in the third quarter.
The survey of 100 RIAs nationwide showed nearly a third (32 percent) of respondents said they were “not at all” or “not too concerned” regarding a major equity downturn in the next 12 months. Furthermore, 20 percent of RIA respondents believe that the S&P 500 is likely to see over 10 percent gains in the next 12 months.
In 2023 and 2024, the S&P 500 returned 26 percent and 23 percent, respectively.
When it comes to portfolio allocations, RIAs are overwhelmingly maintaining their allocations in the wake of the election with 72 percent of respondents not making changes in their investment strategies. A quarter of RIAs plan to become more aggressive with client allocations, the study said.
Despite their relative bullishness, over half (54 percent) of RIAs expect stock market volatility in the next twelve months to be higher than last year. That said, volatility remains a relatively minor worry with only one in six RIAs claiming to be “very concerned” about the risk of a major equity market downturn in the next 12 months.
A more pressing concern revealed in the study was the threat of higher prices. Inflation concerns ticked up 7 percent among RIAs surveyed with two in five (40 percent) now believing inflation will be at least 3 percent in the next 12 months.
“Optimism around the direction of the markets in 2025 is tempered by the belief that progress on inflation will be muted,” said Mike Reidy, national sales manager, RIA channel at Security Benefit, in a statement. “Nearly half still see at least a moderate likelihood of a recession and just over half see continued market volatility throughout the year.”
Jay Funyak, lead advisor at MFA Wealth, is bullish on stocks in 2025 and agrees with the positive market sentiment found in the RIA Economic Outlook Index.
“If you remove the Magnificent 7 from the S&P 500, over the last three years, the average return is below 8 percent. Meaning there is room to run in equites. The run in the market, over half of it, has come from 7 stocks. There are 493 others that are ready for growth,” Funyak said, adding that his favorite sectors are energy and materials.
Nevertheless, he said complacency remains a risk because recent performance has been concentrated in just a few names.
“It’s easy for everyone to focus on the winners, but investors will miss broader opportunities. We believe investors should stay diversified and by working with our firm, they will have a proactive approach, especially in the sectors where they really haven’t paid much attention,” Funyak said.
Elsewhere, Jonathan Dane, founder & CIO of Defiant Capital Group, said stocks will head higher, boosted by accelerating corporate profits which will help reduce excessive S&P 500 valuations and alleviate concerns of an overheating market.
That said, he does feel investors have become complacent and need to remain on their toes going forward. He points out that the S&P 500 posted 57 record closings in 2024 and last year marked the first time since 1997 the S&P 500 posted consecutive 20-plus percent yearly returns.
“Investors have forgotten that markets can turn down, and even experience ‘lost decades,’” Dane said. “The other concern is investors are now failing to diversify, both across market caps and geographies. While it's difficult to tell if mega-cap stocks will continue to drive market performance, it does seem reasonable to expect returns to broaden across equity markets.”
“Complacency is dangerous, but especially for boomers and Gen X nearing retirement. They have become accustomed to markets quickly bouncing off every pullback, as a result may be overallocated to risk in their portfolios. While this approach has worked since COVID, it's important to remember that markets do experience prolonged downturns,” he said.
Moving on, Adam Reinert, chief investment officer and chief operations officer at Marshall Financial, acknowledged that expectations are high heading into 2025. He points out that data from FactSet shows analysts are projecting double-digit earnings growth for the year ahead.
As to whether this bullish view from Wall Street will increase overall investor complacency, Reinert said that “after years of hearing about economic conditions ‘normalizing,’ we may be looking at the new normal.”
“With the benefit of hindsight, it’s increasingly probable that we’ll look back at the low rates and benign inflation of the 2010s the same way we look back at the high interest rates and high inflationary environment of the 1980s—both being economic outliers. The interest rate environment we’re experiencing today appears relatively ‘normal’ from a historical standpoint, but have mindsets fully adjusted?” Reinert said.
Finally, John LeRoy, private wealth advisor at Summit Financial, does sense a level of complacency among investors and advisors after two strong years of equity market performance. In his view, many market participants seem to overlook that stocks are long-duration assets, prone to significant volatility, particularly after periods of outsized returns.
“Complacency can be dangerous, as it may lead to overconfidence, inadequate risk management, or failure to prepare for inevitable market downturns. The best strategy in my opinion is diversification and to proactively re-balance over time. If you don’t, the markets may do this for you at the worst possible times.”
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The SEC-registered RIA advises on more than $1 billion in client assets, with no advisory fee through 2027 and no human financial advisors.
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