Those conclusions are drawn from two sources. The first source is the Vanguard Investor Expectations Survey, which canvasses over 2,000 Vanguard investors regarding their outlook on the stock market and the economy. The second is trading research using account data from Vanguard retail investors (roughly 5.5 million households) and participants in employer-sponsored retirement plans administered by Vanguard (roughly 4 million participant households in roughly 1,700 plans).

Investors’ stock return expectations for the next 12 months rebounded to 2.7% in December from a 5-year low of 0.6% in October (see the orange line in the chart below). That level nevertheless reflects more pessimism than in December of last year. And in fact, the range of short-term expectations across all of 2022 (0.6% to 4.5%) remained lower than at any point in 2021 (4.8% to 7.2%).

“2022 was a rocky year for investor expectations, with more swings in sentiment between surveys than we’ve seen before, and short-term expectation are still historically low,” said Xiao Xu, an analyst in the Vanguard Investment Strategy Group and research lead for the survey. “But it’s not all doom and gloom.”

Even in the trough of October 2022, investors still expected positive returns for the upcoming year—and long-run expectations have remained consistently close to 7% (see the green line in the chart below). Elevated market and economic uncertainty suggest a gap between short-run pessimism and long-run optimism may persist in 2023.

In the December survey, the average GDP growth expected by investors over the next three years rose from 2.7% to 3% (the orange line in the chart below). The long-run expectation on economic growth continued to hover near 4% (the green line in the chart below).

Fewer than one in five investors expect economic growth over the next three years to be below its historical annual average of 1.8% per year.

“Investors are still showing differentiated views on the market and the economy,” Xu said. “That may reflect the disconnect between the year-long market decline in 2022 and the relatively strong economic performance during the same period. The recent easing in inflation might also have added to their more positive take on the economy.”

“Investors’ confidence in continued economic growth over the coming three years is encouraging, given the widely held belief of many professional investors and economists that the economy will enter a recession this year,” said Andy Reed, head of investor behavior research at Vanguard.   

This index, which is a component of the broader survey, indicates investors are less worried now about extreme events such as a stock market crash or a sharp economic downturn.

Investor estimates of the probability of a stock market disaster declined to 6.2% from a five-year high of 8.2% three months ago (the orange line in the chart below). In other words, investors now believe there is just a 1-in-16 chance that the market will drop by 30% or more in the next 12 months. The probability of economic disaster also declined to 6.6% from 8% (the green line in the chart below).

“The change in the Fear and Doubt Index echoes the improvement in investors’ outlook on the economy in the short-term,” said Reed. “However, this is not to say that investors are relaxed by any means—their level of ‘fear’ was elevated throughout 2022.”

As economists are expecting a challenging macroeconomic environment ahead, fear and doubt readings may remain elevated in 2023 as well. 

Despite swirling markets and sentiment, investors largely stayed the course in 2022. Overall household trading activity at Vanguard declined from previous years: Fewer investors and a smaller proportion of assets traded in 2022 compared to 2020 and 2021.¹ That pattern held true for both retail investors and 401(k) plan participants. Not only were investors less likely to trade in 2022, but when they did trade, 7 in 10 traded into equities.

“This suggests investors not only didn’t panic—they may have seen the down market as an opportunity to buy stocks at a discount,” said Fiona Greig, global head of investor research and policy. “Investor trading patterns were more consistent with long-term confidence than short-term concerns, suggesting that investors are maintaining discipline and perspective in turbulent times.”

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 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 retail 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 retail 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 via 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.

• 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)
• Investor expectations: Collapse and subsequent recovery in the COVID crisis (8-page PDF, issued July 2021)
• Cash panickers: Coronavirus market volatility (4-page PDF, issued July 2020)
• Investor expectations: A new survey (16-page PDF, issued February 2020)