Investors are bullish but expect continued market volatility says Morgan Stanley

investmentnews.com:

Three weeks into the third quarter and investors are feeling optimistic about the market and somewhat confident in the economy according to Morgan Stanley Wealth Management.

Its quarterly investor pulse survey reveals a bullish sentiment among 55% of respondents, a rise of 3 percentage points quarter-over-quarter despite 91% feeling that market volatility will remain and possibly increase through to the fall.

Perhaps this high expectation of volatility, and preparedness for it, is why only 26% of poll participants rank it as their top concern relating to their portfolio, putting it behind recession (31%), and high inflation (52%) even though 54% expected inflation to be under control by year-end.

Most investors expect the market to end the third quarter in positive territory with 58% expecting a rise, a 10-point increase compared to the last quarter.

IT (especially AI), energy, and health care are among the favored industries among those polled.

Asked about the Fed, 54% of respondents think it will navigate a soft landing – this was also the view expressed in a recent BofA survey – and 48% think the U.S. economy is strong enough for policymakers to make further rate hikes this quarter.

Despite growing optimism, Mike Loewengart, head of model portfolio construction for Morgan Stanley Portfolio Solutions, says there is investor uncertainty.

“We’re beginning to witness a slow shift happening in the investing landscape as we narrow in on the potential end to the Fed’s rate hike campaign,” he said. “But inflation is still very much a part of the conversation and should factor into long-term investing decisions.”

He added that those investors that have shifted allocations to cash should consider the purchasing power risks.

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