American Millionaires Are Most Bearish Since 2008: Survey

Millionaire investors are a pessimistic lot as they look at the approaching new year. Fifty-six percent of Americans with investable assets of $1 million or more expect the S&P 500 to drop by 10% or more in 2023, and a third expect declines of more than 15%, according to the CNBC Millionaire Survey, released the week before Christmas.

Twenty-eight percent of respondents said the stock market is the biggest risk to their personal wealth over the next year.

CNBC said this is the most bearish wealthy investors have been since 2008, citing an observation by George Walper, president of Spectrem Group, which conducted the survey in November among 761 respondents, representing financial decision makers in their households.

The survey found that spending cuts are moving up the wealth ladder. Eighty percent of respondents said they had planned to spend less in the 2022 holiday season because of inflation. All the millennials in the survey planned to spend less, compared with 78% of baby boomers.

Asked about how they are responding to inflation, 52% of millionaires said they are more conscious of prices when shopping, and a third said they are dining out at restaurants less often.

Pessimism's Fallout

With inflation, rising interest rates and the potential for recession weighing on wealthy investors' minds, their bleak outlook could increase pressure on markets, since millionaires own more than 85% of individually held stocks, according to the survey.

More than a third of respondents said they expect their overall investment returns — bonds and other asset classes, along with stocks — to be negative in 2023. Most are expecting returns of less than 4%, which is low given that short-term Treasurys are now yielding over 4%, CNBC noted.

Many millionaires are holding cash and plan to sit on the sidelines, at least for the time being. Forty-six percent of respondents reported that they have more cash in their portfolio than last year, with 17% saying they hold a lot more.

Sixty percent of respondents also expect the economy to be weaker or much more so at the end of 2023.

The survey identified a big optimism gap between younger and older millionaires. Eighty-one percent of millennials said they expect their assets to be higher at the end of next year, with 46% expecting their assets to be up 10% or more. By contrast, 61% of boomers in the survey expect their assets to be lower or much lower.

More than half of millennial millionaires said the S&P 500 will be up 10% or more in 2023.

According to the survey, millionaire pessimism is also affecting their views of their financial advisors. A majority said they have consulted very little if at all with their advisors about how to position for inflation.

Walper told CNBC that approval levels for financial advisors "have never dropped this much this quickly, at all wealth levels.

"They feel that their advisors are not communicating or preparing them for how to deal with it. They're not talking to them about what all this means for their financial future."

Inflation and the Fed

While inflation has affected their spending, millionaires in the survey were split on the matter of inflation-driven changes in their investment portfolios. Twenty-nine percent reported that they have made changes, while another 11% said they plan to do so.

Thirty percent said they were uncertain whether they would make changes, and 31% said they did not plan to do so.

Millionaires in the survey do not expect inflation to go away soon. Asked how long they expect the current rate of inflation, about 7% year over year, to continue, most respondents said at least a year, and 12% said between two and five years.

At the same time, 58% of respondents said they are confident or very confident in the Federal Reserve's ability to manage the increasing rate of inflation. Only 37% said they are not at all confident.

Yet belief in the Fed varies widely by respondents' age and political party. Fifty-five percent of millennial millionaires said they are very confident in the Fed, but only 5% of boomers are.

Some 80% of Democratic millionaires said they are confident or very confident in the central bank, while 56% of Republican respondents said they are not at all confident.