If the market is in an everything bubble, wealthy Americans are headed into 2022 saying they don’t really want much more — of anything, according to a recent CNBC survey of millionaires.
Wealthy investor sentiment is still tilted toward the bullish, if moderating, with millionaires anticipating higher interest rates and tax rates in 2022. Forty-one percent of millionaires say the economy will get stronger next year, versus 35% who say it will weaken, according to the recent CNBC Millionaire Survey. Just over half, or 52%, of millionaires expect the S&P 500 to finish 2022 with a gain of 5% or more.
But another finding from the survey is the most telling. It signals a downshift in enthusiasm and a weakening overall risk appetite even as the market survived recent Covid omicron and Fed fears to see the S&P 500 set a new record and the Dow Jones Industrial Average remain near its highest-ever level.
Twice a year the CNBC Millionaire Survey asks investors which major asset classes they plan to increase exposure to over the next year. Investor appetite for every investment type is now lower than it was in the spring 2021 survey. The percentage of millionaires who say they will be increasing investment declined across every single asset class, including equities, investment real estate, alternative investments, international investments and precious metals.
For the CNBC Millionaire Survey, Spectrem Group surveyed 750 Americans with investable assets of $1 million in October and November.
Can’t take more risk, can’t get out of the market
“The market is high and people are nervous,” said Lew Altfest, CEO of Altfest Personal Wealth Management. “Our clients are fearful, but none of them are at the point of getting out,” he said. “They haven’t got the guts to pull out.”
“You can’t really get much more risk on as far as fresh dollars,” said Doug Boneparth, president of Bone Fide Wealth. “What are you going to do? Dump all your large caps and invest in all emerging markets stocks? No one is doing that.”
Thirteen years into a bull market run, and after a big pickup in volatility last year that was resolved with government stimulus and the Fed printing more money, “there is limited room to move up, so maybe you take your foot off the pedal here,” Boneparth said.
That doesn’t mean any market conditions that would equate to a significant de-risking, but it makes sense if people are taking a step back and reassessing their portfolios. “It’s been one hell of a ride, and risk appetites have only increased in the not-too-distant past,” he added.
Inflation, the Fed and the 2022 economy
Even if the wealthy are less enthusiastic buyers of stocks, they are buyers of goods, and the economy will do well — and corporate profits as part of it — as long as outside of stocks they continue buying everything at higher prices, Altfest said. When people get tired of spending freely is more important for the economy and market than when the wealthy pull back a little on their risk appetite across asset classes, he said.
After two extremely positive years for the market in 2020 and 2021, investors are digesting the information around inflation and whether it means they should anticipate slower equity growth in the near term.
“Those two things set the table: How much more risk can you take?” Boneparth said.