According to a recent CNBC survey, millionaire investors believe the current U.S. stock market nightmare will worsen in 2023 due to a likely recession.
In November, CNBC conducted the CNBC Millionaires Survey to gather the opinions of investors with at least $1 million in investible assets. It recorded 761 respondents who were financial decision-makers in their households.
The survey showed that the bearish sentiment had peaked since the Great Recession, with 56 percent of millionaire investors forecasting a double-digit decline for the broad-based S&P 500 next year. Almost one-third of respondents anticipate losses of over 15 percent.
The bleak future represents growing fears on Wall Street that the Federal Reserve's aggressive interest rate hikes will lead the U.S. economy to a recession. Twenty-eight percent of millionaires implied that a falling stock market was the most considerable risk to their wealth in the coming year.
“This is the most pessimistic we’ve seen this group since the financial crisis in 2008 and 2009,” said George Walper, president of Spectrem Group, which publishes the survey on Monday.
This year, the stock market plummeted into bear market territory as decades-high inflation and clamped fiscal policy pummelled U.S. companies. The S&P 500 has been down about 20 percent since January.
This is the most pessimistic we’ve seen this group since the financial crisis in 2008 and 2009.
George Walper, President of Spectrem Group
‘Bleak’ outlook for next year
Wealthy investors, according to Walper, are anxious about inflation, rising interest rates and a likely recession. They predicted even more despair next year.
Since millionaire investors own more than 85 percent of all individually held stocks, the bleak future may put even more strain on markets. More than a third of millionaires expect massively negative investment returns, including bonds and other asset classes in addition to stocks, in 2023.
Most investors anticipate less than four percent returns, given that short-term Treasury bonds now generate more than four percent.
Many millionaires are flush with cash and plan to stay that way for the foreseeable future. Forty-six percent of them have more cash in their portfolios than they did the previous year, with 17 percent holding significantly more.
According to the survey — conducted twice a year, in the spring and fall — millionaires are also pessimistic about the economy, with 60 percent expecting it to be weaker or considerably weaker by the end of next year.
Younger millionaires remain optimistic
There is, however, a significant gap in optimism between older and younger millionaires. Eighty-one percent of millennial millionaires are adamant that their assets will be worth more by the end of next year, with 46 percent predicting a 10 percent or more significant increase.
Most baby boomer millionaires, or 61 percent, expect their assets to be lower or significantly lower next year. In contrast, more than half of millennial millionaires anticipate a 10 percent or more significant increase in the S&P 500 next year.
According to Walper, the optimism stems from the fact that Millennials have grown up in a financial world of low-interest rates and rising asset prices, with market sell-offs generally followed by rapid recovery times.
Meanwhile, older generations may still have embedded memory of the high inflation, rising-rate environment of the 1970s and early 1980s, when the S&P fell for several years.
“The millennial millionaires have never lived through a true inflationary environment,” Walper said. “For their entire business life, they’ve seen interest rates that were managed by the Fed. They’ve never seen rate hikes this aggressive.”
The skepticism also influences the attitudes of older millionaires toward their financial advisors. The majority say they have had little or no discussion with their financial advisors about how to plan for inflation. According to Walper, financial advisor approval levels have never slumped this fast at all wealth levels.
Walper said that millionaires think their advisors are not sharing information or preparing them for it. They are also not informed what this signifies for their financial future.