After months of rising confidence, retirement advisors are suddenly souring on the U.S. economy.
That's the upshot of the latest
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
A score of zero is neutral.
This month, RACO's overall outlook score has sunk to minus-6, down from a positive score of 1 in August — and following
It's not clear exactly what caused this sudden pessimism. Advisors blame a wide range of factors, including inflation, interest rates, the federal government and even the mainstream media.
"The wall of worry has been an ongoing theme, heavily driven by the press," one planner wrote.
In general, advisors are now more fearful that the economy will enter a recession than they were a month ago. Eleven percent say they're "highly concerned" about a possible recession, up from 7% in August. Forty-eight percent say they're "moderately concerned," up from 33% last month.
"The economy is going into recession, and the next few years will see the greatest increase in market volatility in history," one wealth manager predicted.
Inflation is a major worry as well, with 48% of planners saying they're "moderately concerned" and 14% "highly concerned."
This may stem from the inflation data of the past two months, which has been moving in the wrong direction. In July, the
"Supply chain issues need to abate … and many price increases are now embedded in the cost of living," one advisor said.
All of this anxiety contributed to a steep drop in client risk tolerance, which has fallen from a score of 2.5 in August to minus-7.3 this month.
This wariness also shows in the way advisors are investing. Only 31% of planners say they're putting more of their clients' funds in domestic equities, compared to 44% last month. Meanwhile, 31% are increasing allocations to cash, up from 25% in August.
"Most of our clients are concerned about the high inflation and a slight chance of recession, so they have been moving funds from stocks to bonds or cash," one advisor said.
Overall, the score for asset allocation has dropped to minus-2.4, down from 10.5 last month. Practice performance has also declined, sinking from a score of 33.5 in August to 26.2 this month.
What's behind this malaise? Many advisors point the finger of blame toward Washington, D.C., with one-third of planners holding a negative view of government policy. In particular, wealth managers are frustrated at the Federal Reserve, which has
"The Federal Reserve has to stop hiking rates," one advisor wrote. "Otherwise all bets are off."
Others are dreading upcoming political conflicts, including the 2024 presidential election and another potential debt ceiling battle.
"The impending government shutdown, because of Congress being unable to address voters' needs, does concern me," one planner wrote.
There's no shortage of worries. Advisors are also fretting over China's economic troubles, the restarting of student loan payments, housing costs, supply chains, climate change, drug prices, the health and age of political leaders, artificial intelligence and "a general exhaustion with politics."
And yet, in this wall of worry, a few cracks of optimism have emerged.
"Most clients are hoarding dry powder, getting positioned for the next bull market in '25 or '26," one advisor wrote.
Another put it more simply: "Stay calm."
