Despite the brutal market drop which has the S&P 500 down nearly 19% year to date, financial advisors are expecting a 4.4% return from the S&P 500 for calendar year 2022, according to a survey conducted in April by $1.3 trillion asset management firm Natixis Investment Managers.
Advisors in the U.S. were less optimistic than their global counterparts but all of the 2,700 advisors were unanimous in projections for the year ending in positive territory, not only in the U.S. but globally. The advisors projected the MSCI World Index, which is currently down 19% year to date, to return 4% in 2022.
Dave Goodsell, Executive Director of the firm’s research arm, the Natixis Center for Investor Insight, says that the overall optimism from advisors stood out in the results. Their predictions would require a breathtaking snapback in stock markets, a gain of 28% in the S&P 500 from current levels in about six months. Historically average bear markets last just under 200 days, but those occurring prior to a recession tend to last more than twice as long.
“There’s a lot of change going on in the marketplace, we’re going from low-interest rates to rising rates and from low inflation to higher inflation,” Goodsell said. “They seem to be less worried about that change and focused on how they grow over the long term. It’s definitely an optimistic message that comes through.”
In most countries, including the U.S., advisors expect mid-single digits returns while the outlook is most bullish in Singapore and Hong Kong where advisors expect double-digit returns and more bearish in France and Germany where returns of less than 1% are expected.
Advisors think that clients can expect returns of about 7% above inflation over a longer-term horizon but believe their clients expect returns of 9.2% above inflation, a gap between expectations and reality of 220 basis points.
The top concerns for advisors are inflation, which was cited by 66% of respondents, rising interest rates, 61%, and geopolitical conflicts, 46%, with market volatility at 42% the only other response above 40%.
When it comes to clients, the questions advisors are most often hearing are whether they should be getting out of the market, whether they should be afraid of rising interest rates and whether their portfolio has protections from inflation.
With soaring rates and inflation, advisors are most bullish on commodities, infrastructure and private assets. When it comes to equities, 40% of advisors say stocks have become more attractive in the current environment with 21% saying less attractive and 39% saying their views are unchanged. On the bond side of portfolios, 72% of advisors see them as less attractive in the current market with only 13% seeing bonds as more appealing and 59% finding alternatives more attractive.
Advisors are less than enthused by the imploding crypto market with 61% telling clients to avoid them and only 26% personally owning crypto.
The survey was conducted in March and April of this year, at a point when the S&P 500 had already dipped 10% below 52-week highs but would still have some losses to follow before entering bear market territory earlier this month. It included 2,700 financial advisors globally, 300 of which were from the U.S.