Market sentiment landscape is marked by divergence, Schwab data reveals

Advisor confidence is rebounding but clients are increasingly cautious, setting up divergence in asset preferences and investor psychology.

The 2025 Schwab Market Outlook Study surveyed both RIAs and retail investors and reveals that 62% of RIAs describe themselves as optimistic about market conditions, up from 52% in 2024, but just 13% of retail investors report feeling that way, a drop from 19% last year.

That widening gap also hints at a growing disconnect in how risk, opportunity, and uncertainty are being processed across segments, especially with advisors rotating back toward equities, particularly US large-cap stocks, while retail investors are holding onto defensive postures.

RIAs have increased their overweight to US large caps by 18 percentage points over the past year, and many are also scaling back on long-duration fixed income. There’s also a subtle shift away from cash holdings among advisors, suggesting a change in thinking around opportunity cost as inflation cools and the Fed appears set to hold rates steady.

Investors continue to exhibit a preference for safety, maintaining high allocations to cash and short-term instruments, while retreating from equities, may reflect fatigue with recession narratives, inflation headlines, and geopolitical noise.

Millennial investors are more bearish and uncertain about the economy and the markets than Gen X and Boomers. Across all groups, tariffs and geopolitics are the main concerns followed by inflation and stretched equity market valuations. Advisors agree with investors on the order of these.  

Advisors appear to be interpreting the softening inflation and resilient labor market as signs of a stabilizing economy, but investors seem more focused on the risks that remain, from elevated valuations to potential policy missteps and are more cautious about jumping back in.

Asked about rate cuts in 2025, advisors are more bullish than investors but the largest share of both groups expects only one cut this year.

Although there’s agreement across groups that inflation is easing, and that the economy is likely to avoid a deep recession, advisors are leaning into it while investors, at least for now, are still watching from the sidelines.