Advisors remain relatively optimistic about stock market returns and performance, believing this year will end more like 2018 than 2008—surprising, given all that’s happened.
A comprehensive survey from Natixis Investment Managers found that financial professionals expected the stock market to escape pandemic driven volatility relatively unscathed.
Advisors believe the market will continue to right itself in the second half of the year, but they foresee more volatility ahead, and ultimately forecast modest losses for the year of 3.6%.
“They are remarkably optimistic and calm about this,” Dave Goodsell, Executive Director of the Natixis Center for Investor Insight said, noting his team was lucky to field the survey when they did. “I think there was so much question as to what’s going to happen with the pandemic, because we fielded this when the economy was shutting down. I just found the resiliency of their opinion to be one of the most incredible statements of their convictions about investing.”
Find more about the survey here
Between March 16 and April 24, Natixis surveyed 2,700 financial professionals in 16 countries, including a pool of 300 wealth managers, investment advisors, and brokers in the U.S.
It found that, globally, respondents forecast a loss of 7% for the S&P 500 and a loss of 7.3% for the MSCI World Index at year-end.
Their 2020 return expectations more closely resemble the modest declines seen in 2018 than in 2008, when the S&P plunged 37% and the MSCI posted a loss of 40.33%.
In the U.S., the outlook was more optimistic, but elsewhere, financial professionals are notably more pessimistic about stock performance in their own markets.
“Where we saw the greatest skepticism or pessimism was, say, in Hong Kong, where advisors there thought the Hang Seng Index would be down 11.5%, or Singapore, where they thought the FTSE STI would be down 13.9%,” Goodsell added. “It was interesting to see that people were looking at the U.S with a little more resiliency than they saw in global markets.”
Resetting expectations
Nearly half of financial professionals (46%) agreed that markets were overvalued; nine in ten (92%) believed the prolonged bull market had made investors generally complacent about risk. And as long as the markets are up, 48% of respondents said their clients resist portfolio rebalancing.
“One thing they told us was that it showed that the market was driven more by sentiment than valuations, which was a really interesting take,” Goodsell said. “Advisors tend to be very logical, and we’ve done studies with MIT that show they tend to be contrarian, while individual investors tend to be extrapolating. Advisors, therefore, say most investors don’t recognize risk until it’s already been realized.”
One other note was the advisor belief (eight in 10) that this recent volatility will favor active management, something Goodsell said is a “sense of vindication that process does matter in being discreet and discriminate about what is put into a portfolio.”
“It makes sense,” he concluded. “If you looked at the dispersion in the S&P 500 in March, it was 15%. It had been running at about 6.6% since the global financial crisis. To me, that’s a really interesting point on this. They were really reading what was going on.”