Vanguard survey reveals how investors feel about the market

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Expectations are central to the economic and financial decisions investors make. For that reason, we’ve been tracking the evolution of investor expectations through the Vanguard Investor Expectations Survey since February 2017. The latest survey, conducted in August 2022, indicates that while investors are still apprehensive about the outlook for stocks and the economy, some of the pessimism built up in the first half of 2022 dissipated—but remains at a high level.

This bimonthly survey poses 13 brief questions about U.S. stock market and economic growth expectations to a random sample of 2,000 Vanguard retail and 401(k) investors. It is conducted in partnership with academic researchers Stefano Giglio of the Yale School of Management, Matteo Maggiori of the Stanford Graduate School of Business, and Johannes Stroebel of the New York University Stern School of Business.

3 key takeaways from the latest results

•  There’s been some lessening in short-term pessimism regarding stock returns and economic activity.
  

“It is worth noting that the most recent survey responses were collected in August when the market had rebounded a little from its slide into bear territory in June,” said Xiao Xu, a Vanguard investment strategy analyst and research lead for the survey.

The average Vanguard investor anticipates the U.S. stock market will rise by 3.4% over the next 12 months, a bounce back from the survey’s lowest reading ever of 0.8% in June but well below the expectation of 6.6% a year ago (see the yellow line in the expected annual stock market return chart below). There was some recovery as well in expectations for real gross domestic product (GDP) over the next three years. Expectations for growth averaged 2.7%, up from 2.5% two months ago but below the level of 3.5% recorded a year ago (see the yellow line in the expected annual GDP growth rate chart below). Longer-term expectations for stock returns and GDP remain fairly stable.

A less gloomy outlook on U.S. stocks and the economy in the short term

Notes: The chart shows results from an August 2022 bimonthly Investor Expectations survey of a random sample of approximately 2,000 Vanguard retail and 401(k) investors.

Source: Vanguard.

 

• The Fear and Doubt Index has declined. This index, which is a component of the broader survey, indicated that investors are a little less anxious about a stock market crash or a sharp downturn in the economy.

The average survey respondent estimated the chance of a near-term stock market disaster—defined in the survey as a loss of more than 30% in the next 12 months—to be 6% in the current survey, down from 7.5% two months ago, but that level is still not far from the all-time high for the past five years (the yellow line in chart below). “The fear driven by the market decline in the first half of 2022 appears to have eased a bit in this survey given the short market rally we saw leading up to August. However, it is hard to tell if sentiment has decisively turned, especially given the renewed uncertainty in the market,” said Xu.

The average survey respondent estimated the chance of a deep economic recession in the next three years—defined in the survey as an average of –3% annual GDP growth over the next three years—at 7.2%. That is up from a year earlier but has fallen from 8.2% two months ago (the turquoise line in chart below).

Fear and Doubt Index lessened versus the previous survey

Source: Vanguard.

• Our Disagreement Index has risen, signaling increased uncertainty surrounding stocks.

“This index is higher than last year, reflecting the uncertainty in the minds of investors about the stock market,” said Andy Reed, head of investor behavior research at Vanguard.

This index measures the average deviation in investor expectations from the consensus on the direction of the stock market over the next 12 months. A higher number indicates less agreement among respondents.

The most optimistic investors (top 10%) expect a market return of more than 10% in the next year while the most pessimistic (bottom 10%) expect a market return of less than –5%. The gap is much higher than in August 2021.

The survey also measures disagreement over the outlook for the economy, which has remained relatively flat since the February 2021 survey.

Disagreement Index changed course in Augu

Source: Vanguard.

About the Vanguard Investor Expectations Survey

This survey, conducted by Vanguard’s investor behavior research team, collects Vanguard investor expectations on U.S. stock market returns and U.S. GDP growth.

The survey responses reflect investor beliefs about the market and the economy. The responses may be of use to advisers, plan sponsors, researchers, and other investors wishing to gauge current sentiment among individual households and calibrate what a client thinks compared to the market.

The survey involves a random sample of U.S.-based Vanguard investors invited by email to participate. About 80% of the sample is drawn from our retail clients and about 20% from participants in employer-sponsored defined contribution retirement plans. To be included, investors also must have opted in to receiving Vanguard statements via email, be over the age of 21, and have total Vanguard assets of at least $10,000. Overall, this group holds about $2 trillion in assets at Vanguard. We receive about 2,000 responses from investors in each wave.

The first survey was conducted February 2017. It runs bimonthly in February, April, June, August, October, and December. A special survey was conducted in March 2020 during the market crash.

Note: All investing is subject to risk, including possible loss of the money you invest.