Preliminary data on client trading activity, which falls outside the scope of our Investor Expectations Survey, showed some evidence of opportunistic buying in financial stocks and ETFs in early March, but only among a very small fraction of our investors. That finding is based on an accounting of buy and sell transactions on Vanguard Brokerage Services platform.

In February, investors expected stocks to return 4.4% over the coming 12 months, versus their December 2022 expectation of 2.7%, as reflected in the first chart. That increase brought expectations back near where they were at the beginning of 2022 before market volatility picked up. Expectations for annual returns over the next 10 years rose to 7.4%, just shy of their historical high of 7.5%.

“Both the direction and magnitude of the change in short-run expectations was encouraging,” said Andy Reed, head of investor behavior research at Vanguard. “In the space of four months, they climbed 3.8 percentage points to finish near their historical average for our survey. That improvement suggested a normalization in investor sentiment, but we’ll have to see if recent volatility in the banking sector results in a pullback in optimism.”  

Investors’ expectations about growth have been on an upswing, climbing from troughs in June 2022. In February, the average annual GDP growth rate expected over the next three years rose for a second consecutive time to reach 3.2%, as shown in the second chart. The outlook for the next 10 years rose to 4.1%, just shy of its record high.

“Investors’ upbeat assessment of the prospects for growth echoed stronger economic indicators, including the unemployment rate, which hit a 54-year low,” said Xiao Xu, an analyst in Vanguard Investment Strategy Group and research lead for the survey. “In contrast to October 2022, when long-run confidence about the economy peaked and short-run confidence was relatively low, investors in the February survey showed confidence across both measures, with the gap between the two narrowing significantly.” 

In February, investors believed there was an increasingly unlikely chance—just 1-in-20—that the stock market would drop by 30% or more over the coming 12 months. Investor estimates of the probability of economic disaster—defined in the survey as an average of –3% annual GDP growth over the next three years—also declined, slipping from 6.6% in December 2022 to 5.6% in February, as the third chart indicates.

Entering 2022, investors faced challenging macroeconomic conditions, with inflation surging, interest rates set to rise, and the stock market near a record high. As the year progressed, market volatility took its toll on investor sentiment, with the Fear and Doubt Index spiking to levels not seen since the onset of the pandemic.

“The first two months of 2023 were a different story from 2022, with investor uncertainty and anxiety falling back to more typical levels,” Reed said. “That normalization could have been due in part to forward-looking investors believing that negative macro news has already been priced in by the market, and backward-looking investors being swayed by recent strength in the stock market and economy despite much tighter financial conditions.” 

Vanguard’s investor behavior research team has been collecting Vanguard investor expectations on U.S. stock market returns and U.S. GDP growth since February 2017. The survey runs bimonthly, in February, April, June, August, October, and December. A special survey was conducted in March 2020 during the pandemic-induced market crash.

This survey poses 13 brief questions about U.S. stock market and economic growth expectations to a random sample of 2,000 Vanguard personal and 401(k) investors. It is conducted in partnership with academic researchers Stefano Giglio of the Yale School of Management, Matteo Maggiori of the Stanford Graduate School of Business, and Johannes Stroebel of the New York University Stern School of Business.

The survey respondents are a random sample of U.S.-based Vanguard investors invited by email to participate. About 80% of the sample is drawn from our personal investor clients and about 20% from participants in employer-sponsored defined contribution retirement plans. To be included, investors also must have opted in to receive Vanguard statements by email, be over age 21, and have total Vanguard assets of at least $10,000. Overall, this sample group holds about $2 trillion in assets at Vanguard. We receive about 2,000 responses from investors in each period the survey is conducted.

The responses may be of use to advisors, plan sponsors, researchers, and other investors wishing to gauge current sentiment among individual households and calibrate what a client thinks compared with the market. 

• Investor pulse: Less market pessimism, more economic optimism (article, issued January 2023)
• Advice for investors feeling anxious (webcast replay, March 2023)
• Vanguard investor pulse: Anxiety and cash needs on the rise (article, issued November 2022)
• Vanguard investors stay the course, even amid their flagging expectations (article, issued July 2022)