More RIAs growing cautious despite bull market run

Financial advisors are growing increasingly cautious – and defensive - even as stocks continue to march higher.

The S&P 500 returned more than 16% in 2026, finishing the year at 6,845. The healthy showing for US stocks followed impressive gains of 24% and 23% in 2023 and 2024 respectively.

And while most Wall Street banks are forecasting another year of moderate to strong equity gains with some year-end forecasts even reaching 8100, an increasing number of RIAs are growing skeptical of the market’s prospects.

According to the latest RIA Economic Outlook Index released this week by Security Benefit in partnership with Greenwald Research, RIAs are growing more cautious in their economic outlook for 2026. The index, which measures advisor sentiment on a scale from 0 (extremely pessimistic) to 100 (extremely optimistic), fell to 53 in the fourth quarter, marking the lowest reading since the index was introduced in Q1 of 2024 and signaling a continued cooling in confidence.

Inflation expectations were a key driver of the decline, with just four in ten RIAs (42%) now expecting inflation to remain below 3% in twelve months, down sharply from seven in ten (69%) last quarter.

Market volatility concerns also increased in the fourth quarter, according to the report, even as recession expectations remained relatively contained. Half of RIAs (50%) now expect stock market volatility to be higher over the next 12 months than in 2024, up from 42% last quarter.

Meanwhile, the survey said 23% of advisors say they are extremely or very concerned about the risk of a major equity market downturn, up from 16% in the third quarter. As a result, a third of RIAs (34%) say they increased their allocation to international equities in the fourth quarter, suggesting greater emphasis on diversification as they manage volatility and shifting global dynamics like tariffs and geopolitical tension.

Rick Wedell, chief investment officer at RFG Advisory, for one, says that with anemic job creation numbers and continued pressure on inflation from tariffs, caution around the economic outlook is warranted. When it comes to a major market downturn, however, he believes it must be triggered by a catalyst – an unexpected change in the direction of the economy and the earnings potential of the S&P 500.

“By definition, that change has to be unexpected – if we expected it, it wouldn’t change our forward outlook,” Wedell said.

The risk in 2026, in his view, is which way the inflation versus unemployment picture starts to break, which for the time being he sees as “very uncertain.”

“Best case is that both numbers move back into range and the Fed can sit tight. Moderate case, we break in one direction or the other and at least the Fed knows which fire it should be fighting. Worst case, the tariffs continue to push inflation higher and job creation numbers do not rebound, in which case it’s unclear which fire the Fed will fight,” Wedell said.

Similarly, Tom Graff, chief investment officer at Facet, meanwhile, sees recession as a very real risk with job growth at a pace that has historically always resulted in a recession and stubbornly high inflation.

“We see a very wide range of outcomes for 2026 in stocks. Not only is recession a very real risk, but there are also growing concerns about the sustainability of AI spending, which has been the driving force of the market the last two years,” Graff said.

GETTING MORE DEFENSIVE

RFG’s Wedell says he has “moderately” increased the duration of his fixed income portfolios to provide more of a parachute for his investors to the extent that the employment environment worsens.

“In our mind, the worst case market outcome - even though it’s not the most probable - would be a recession driven by employment and consumer confidence, and in that environment, duration is your friend,” Wedell said.

For his part, Facet’s Graff has added some defense over the course of 2025, reducing his technology holdings and increasing non-U.S. holdings.

“We are believers that you don't want to try to time the market by going to cash or increasing bond allocations. But you can add defense into your equity portfolio,” Graff said.