Registered investment advisors (RIAs) now have heightened concerns about the market compared to the first half of the year, finds a new economic outlook index out today by insurance company Security Benefit.
The index found that RIA sentiment on the economy fell to 53, after remaining stable at 58 during the first and second quarter of 2024. Security Benefit’s index ranges from zero, which it regards as extremely pessimistic, to 100, as extremely optimistic.
The Federal Reserve’s recent rate cuts have added to advisors’ growing skepticism. Following the Federal Reserve’s half percentage point reduction in September, 24% of RIAs now anticipate four or more rate cuts within the next three months. Furthermore, while 42% previously expected at moderate likelihood of recession in 12 months, that number has since jumped to 52% who believe the economy may decline in the next year.
“RIAs are shifting their strategies to accommodate for growing volatility heading into the end of the year,” said Mike Reidy, a national sales manager of the RIA Channel at Security Benefit. “Markets don’t like uncertainty, and that’s what we’re dealing with.”
Part of the unpredictability is tied to the general election, now just weeks away. Between the candidates, nearly 6 in 10 (57%) of advisors surveyed think that a former President Donald Trump victory will cause equity values to rise and 51% believe that a Vice President Kamala Harris victory will cause equity values to fall.
While market volatility is expected during a presidential race, past historical data has shown resilience and growth in the days and weeks to follow. According to research from Fidelity Investments, U.S. stocks have averaged returns of 9.1% in election years since 1950.
Given this knowledge, 86% of advisors say they have not changed their investment strategies due to either political campaign.
Past Security Benefits findings revealed that 80% of RIAs believe downside protection is “highly” valued by clients, while 50% say it could positively impact client portfolios. However, nearly half agree that a client’s age is important in measuring the appropriate level of protection, while 46% deem investment allocation as a significant factor when implementing the product.
“During an election year, it’s very common for markets to experience short-term volatility due to speculation around potential policy changes,” adds Reidy. “As global conflicts and the election continue to foster uncertainty, it is important that RIAs build client strategies that look to the future and consider downside protection. Data and market fundamentals suggest that long-term investors should maintain a steady course.”
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