As the U.S. economy faces multiple threats — high inflation, a possible recession and a potential default on the national debt, to name a few — retirement savers are watching and waiting.
That's the picture painted by the latest data from Arizent's Retirement Advisor Confidence Index (RACI). In April, as the stock market recovered from the recent banking crisis but other dangers still loomed, most scores measuring client confidence remained almost frozen in place.
"It feels like everyone is waiting for the bottom to drop out on the economy," one wealth manager told RACI's survey. "Interest rates feel so high, banks are now having issues … It's hard to believe the economy has held up this well this long."
RACI's composite score, an aggregate of various measures of investor confidence, inched upward — barely — from 48.6 in March to 48.8 in April. Scores above 50 indicate rising confidence, while anything below 50 indicates a decline. That means retirement confidence slightly deteriorated in April — at almost exactly the same rate as in March.
"Clients are not quite as skittish about the economy, but there are still strong headwinds for most clients," one advisor said, citing "higher inflation," "costs of medical care in retirement" and a "flat economy."
Investors' risk tolerance also showed little change, dipping just slightly from 45.2 in March to 44.8 in April.
Meanwhile, total investments in retirement plans moved somewhat in the opposite direction. The RACI score for overall contributions crept upward to 59.1 in April, after two straight months of sitting at 57.8.
The most significant change — though not by much — was in the amount investors spent on stocks. The RACI score for client assets invested in equities dropped from 56.9 in March to 53.9 in April.
In general, the story told by last month's data — and by advisors' comments — is that as the economy stared down numerous potential crises, retirement savers held their breath and made no sudden moves.
"The market seems to be waiting to determine when the Fed will be in a position to cut rates," one advisor said. "Everything is remaining fairly stagnant until then."
On multiple fronts, April was a month of suspense. The Federal Reserve did not meet to adjust interest rates, leaving investors guessing what their next move would be. (On May 3, it finally raised the federal funds rate by a quarter of a point.)
Meanwhile, the federal government continued to drift toward
But Republicans have refused to raise the ceiling unless the Biden administration agrees to major spending cuts, and no significant progress has been made toward reaching a deal. Many retirement advisors said this made their clients anxious.
"We are cautious as the deadline for the debt ceiling approaches," one financial planner said.
April also came on the heels of the previous month's banking crisis. From March 8 to 12, three regional banks — Silvergate, Silicon Valley and Signature — collapsed in quick succession, rattling investors across the country.
"The interest rate environment and the impact of the bank defaults has made clients nervous," another advisor said.
In April, the stock market recovered from that crisis, however unevenly. By the end of the month, the S&P 500
Meanwhile, inflation remained a major concern. As of March, the
"Clients are still concerned about inflation and the potential for a recession," another advisor said.
In spite of all this anxiety, RACI's data showed that clients largely left their investments alone. The cause of that steadiness is open to interpretation — clients may have been paralyzed with fear, or waiting for an actual recession or default to arrive before taking action. Or, more optimistically, their advisors may have successfully persuaded them to stay the course.
"The worse the economy gets, the more people need advice," one wealth manager said.