Most retail investors feel bullish but concerned about what's to come

America’s retail investors continue to be buoyed by performance in the equity market and expect the rally to endure in the near term.

Two separate surveys reveals an overall bullish sentiment, although investors recognize some potentially challenging times ahead.

Morgan Stanley Wealth Management’s quarterly retail investor pulse survey released Thursday shows that 59% of respondents are bullish, although this is two points lower than in the previous quarter as the presidential election approaches and geopolitical tensions rise.

Inflation is less concerning now with an eight-point drop in the poll, while the 2024 election (34%) and market volatility (23%) complete the top three concerns. Meanwhile, the potential for a soft landing has risen 10 points in investors’ views with 64% thinking the Fed will steer the economy to that outcome.

And 68% of investors believe the Fed has room to make further interest rate cuts given the strength of the economy, a 2- point increase from the previous quarter.

IT, energy, and healthcare remain the top three sectors in favor with investors.

“It certainly feels like we’re at a bit of an inflection point with the Fed in rate cutting mode and investors remaining bullish,” said Chris Larkin, Managing Director, Head of Trading and Investing, E*TRADE from Morgan Stanley. “With year-end in close range, investors are starting to take stock of where the market stands but questioning what’s ahead. Despite some trepidation from the election and geopolitical uncertainty, the momentum from September has investors confident.”

Meanwhile, the AAII Sentiment Survey also continued to show bullishness was more prevalent among retail investors than bearishness.

But the weekly survey revealed a dip in bullishness (from 49% in the previous week to 45.5%) while bearishness rose (from 20.6% to 25.4%). Historical averages are 37.5% for bullishness and 31% for bearishness.

The survey also asked investors what they think of current stock valuations. Almost half felt they are generally overvalued, 35% think there is a mix of expensive and cheap stocks, and 12% think stocks are generally fairly priced.