Retirement confidence jumps as inflation eases and stocks rise

Just in time for the holidays, retirement advisors are suddenly feeling a lot better about the U.S. economy.

The latest data from Arizent's Retirement Advisor Confidence Outlook (RACO) shows a dramatic rise in wealth managers' economic optimism. Scores were up across the board, measuring everything from client risk tolerance to government policy.

Those factors are used to calculate RACO's overall outlook score, which measures advisors' confidence on a scale of negative-100 to 100. In December, that score rose to negative-0.43 — which might not sound high, but it's up from negative-17.6 in November.

The jump indicates that the improvement seen last month, when the outlook score rose from negative-21.35 to negative-17.6, was not just a fluke, but the beginning of a longer upswing. In their answers to RACO's survey, many advisors expressed a cautious hope that the economy was heading in the right direction.

"Easing inflation and retail supply chains flowing more smoothly have improved the chances of a soft landing instead of a recession," one planner said. "I expect a moderate slowdown before the economy starts picking up again with expected rate cuts next year."

The main reason for this upswing is hard to pinpoint, since almost all contributing factors showed improvement. One of them was client risk tolerance, which rose from negative-20.1 in November to 1.1 in December.

"It seems inflation has tapered, so clients are not as risk averse," one advisor said.

Public policy factors, which usually don't poll well with retirement advisors, did better as well. The score measuring attitudes toward the global economic system rose from negative-60.3 in November to negative-47.2 in December. Sentiment on government policy, meanwhile, leapt from negative-24.4 to negative-5.35 — which, though negative, is the highest that score has ever been in RACO's seven month history.

That doesn't mean advisors have become fond of Congress. In their answers to other questions, planners made it clear they were feeling more positive — or at least less negative — about the Federal Reserve, not the federal government.

"Hopefully the Fed has now stopped increasing rates and by the end of next year they will lower rates back down some," one advisor said.

But the biggest improvement of all was in how wealth managers viewed the overall economy. From November to December, that score jumped almost 23 points, from negative-7.6 to 15.2.

What could explain this growing optimism? Many advisors credited a slower rise in prices.

"The decrease in inflation has been helpful for our business outlook," one planner said.

But lower inflation is not especially new. In fact, the yearly change in the consumer price index has hovered around 3% since June.

A more likely explanation is what's beginning to look like a "Santa rally" in the stock market. In November, stocks enjoyed their best month so far in 2023, with the S&P 500 and the Dow Jones both gaining about 9% and the Nasdaq up almost 11%.

Several wealth managers said this rally was putting their clients in a better mood.

"The market rebound in 2023 is bringing some clients who went full conservative last year … back into equities," said one advisor.

Others tempered their optimism with caution, noting that not all investors are feeling the holiday cheer in equal measure.

"Some clients are more optimistic about the market and economy returning," one advisor said. "Others feel the complete opposite."