Investors turning more bearish on the market, more optimistic on the economy

The U.S. economy is set to improve by the end of the year according to 55% of respondents to a new survey from Morgan Stanley.

The poll found that more than half also believe inflation will normalize by the time we welcome 2024 and 41% think it will be early in the new year or sooner when the Fed starts cutting interest rates.

However, things are less optimistic when it comes to the market with bearish sentiment up four percentage points to 49% in Q3 compared to the last quarter, nearing Q1 levels (52%).

And while inflation may be lower in the months ahead, it’s still an issue when related to investment portfolios with 51% of respondents citing as their top concern ahead of recession (32%) and market volatility (31%).

PORTFOLIO FOCUS

Investors have some key sectors that they are focused on, led by energy which gained four percentage points with crude oil prices trending higher again. IT has 46% interested although it has eased back five points quarter-over-quarter, and 36% of respondents were interested in health care investments.

“As we approach the end of 2023, headwinds abound with continued elevated inflation and geopolitical tensions on the rise,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley Portfolio Solutions. “Yet somewhat remarkably, the economy has continued to chug along—particularly on the jobs front. This leaves investors facing a conundrum—a resilient economy coupled with a volatile market. Environments like these show the power of a diversified portfolio, which can help an investor weather whatever may be ahead for the market. The goal is to invest through the volatility, not react to it.”