As inflation cools and the stock market improves, retirement advisors have reached a turning point: This month, their view of the economy went from negative to positive.
That's according to the Retirement Advisor Confidence Outlook (RACO), Arizent's new survey of wealth managers across the country. Every month, RACO asks hundreds of financial planners about various economic conditions, as well as their own clients' asset allocations.
All those answers are boiled down to one number: a score between minus-100 and 100, measuring retirement advisors' confidence in the U.S. economy. Negative numbers indicate a negative outlook, while positive ones reflect optimism, and a score of zero is neutral.
This month, for the first time, RACO's overall outlook score broke above the surface and crept up to 1. While that's not an overwhelming endorsement of the economy, it shows steady progress from the negative scores of minus-13.7 in June and minus-5.08 in July.
"The economy is still growing and inflation is coming down," one planner said. "I feel interest rates will start to steady in the coming months, keeping America out of recession."
Of all the factors that contributed to the higher score, the biggest jump was in how wealth managers viewed the overall U.S. economy. That score rose to 22 in August, up from 7.6 in July. Forty-three percent of advisors said they had a positive outlook on the economy, up from 36% in July.
Views of the world economy were not as rosy. The score for planners' outlook on the global economic system was minus-44.5, barely above July's score of minus-46.4. In August, only 8% of wealth managers said they had a positive view of the global system.
But when it came to the American marketplace, the mood was much more bullish. After years of widespread worries about a potential recession, a plurality of advisors — 43% — expected the economy in the next few months to grow. Only 21% expected it to contract, and 36% expected it to stay the same.
"Looks like a soft landing is more likely than a painful recession," one planner wrote.
Perhaps as a result of this optimism, clients' confidence crept up as well. Investors' risk tolerance inched up from a score of 1.8 in July to 2.5 in August. And half of all respondents said their clients had become more comfortable investing in equities since July.
Wealth managers plan to act on that. This month, 43.5% of advisors expect to increase their clients' allocations in U.S. stocks — more than for any other asset. Only 11.5% said they expected this part of their clients' portfolios to decrease.
Advisors cited a number of reasons for this. One is that the stock market has generally been doing better in recent months. In July, the S&P 500
"Markets have largely recovered since 2022 so FOMO is replacing fear," one planner wrote, referring to the acronym for "fear of missing out."
Meanwhile, advisor confidence also increased in an unusual area: government policy. The score for this factor was minus-18 in August, which, though still negative, marked a steep jump from the July score of minus-29.5.
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That does not mean wealth managers are becoming fans of President Joe Biden. The government score is calculated from two components: advisors' views of monetary policy and their views of new legislation. On legislation, which is determined by the president and Congress, only 8.5% thought it would have a positive impact on their clients' well-being.
On the other hand, wealth managers were much more supportive of monetary policy, which is determined by the Federal Reserve. A full quarter of advisors said they expected the Fed's actions to have a positive impact on their clients.
"I feel [Fed Chairman Jerome] Powell is either done increasing interest rates or will increase rates only one more time," one planner said. "He has brought inflation under control while maintaining low unemployment levels and high economic activity."
Yearly inflation has dropped from 9.1% in June 2022 to 3% one year later. Many advisors handed the credit for that to Powell and his repeated interest rate hikes.
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"The Fed has already brought us back to normal rates," said another advisor. "All inflationary numbers are decreasing. Back to normal."
Among financial advisors, the upshot of all this is that a cautious optimism has become almost as widespread as fears of a recession once were. While few planners are predicting boom times, hopes for a "soft landing" are more common than ever.
"Profits are good. Inflation is down. Most indicators are positive or neutral," one advisor wrote. "Looks like we might squeak by."
