Traders work on the floor of the New York Stock Exchange (NYSE) in New York, United States, May 9, 2022.
Brendan Mcdermid | Reuters
US millionaires are raising funds in response to lingering inflation fears, according to CNBC’s Millionaire Survey.
Millionaires polled by CNBC ranked inflation as the top risk to the economy and their personal wealth. It is the first time since the start of the survey in 2014 that inflation has exceeded all other risks in the ranking. Forty-two percent of millionaires said the inflation would last “at least a year or two,” and a further 19% said it would last more than two years, according to the results.
The survey includes investors with at least $1 million in investable assets. It was conducted in May and surveyed around 750 respondents who said they were the financial decision makers or shared financial decision making within their household. Since the survey was conducted, a reading of consumer prices revealed that inflation had accelerated further in the past month and the S&P 500 has slipped into a bear market, more than 20% from its recent peaks.
“Obviously there is a shift to a very pessimistic and worried view,” said George Walper, president of Spectrem Group, which conducts the CNBC Millionaire survey. “They’re not sure the Federal Reserve can handle these issues.”
The Federal Reserve raised its key rate by 75 basis points on Wednesday.
Millionaires are divided on the Fed’s ability to slow inflation or reduce demand without causing a recession, according to the survey. Thirty-five percent said they were “not at all confident” in the Fed’s ability to manage inflation, while nearly half said they were “somewhat confident”.
Opinions on the Fed diverge widely based on political affiliation: Most Republican millionaires said they were “not at all confident” in the Fed’s ability to manage inflation, while most of Democratic millionaires said they were “somewhat confident”.
More than a quarter of millionaires think the US is already in a recession, and a further 34% said the US will fall into a recession this year. Only 21% said the United States was not heading into a recession.
“They’re very clearly concerned about a recession, and we won’t know for six months whether we’re into it now,” Walper said.
According to the survey, millionaires own about 90% of individually held stock in the United States. So far they are not panicking and selling. But most are raising more cash and putting more money into short-term fixed-income investments given rising interest rates.
Nearly 40% of millionaires said they were planning to make changes to their portfolio or had already made changes due to inflation, 44% said they kept more money in cash, and 41% said having purchased more fixed rate investments. Of those surveyed, 35% said they bought stocks and 31% said they sold stocks due to inflation and its impact on certain sectors and stocks.
High net worth investors are usually among the first to take advantage of market declines and buy during key periods because they can afford to be more aggressive. Yet so far, millionaires are showing little sign of buying from recent market declines, suggesting they see more pain ahead for markets and interest rates.
“When volatility slows down and people feel like we’re close to a bottom, that’s the group that moves and looks for troubled opportunities and good values,” Walper said. “They did it in April 2020. But we don’t see that now. They don’t see that ending anytime soon.”
Fifty-eight percent of millionaires expect the economy to be weaker or “much weaker” by the end of the year, according to the survey. Most also expect the S&P 500 to end the year with a double-digit decline: more than half of respondents expect the S&P to fall at least 10%, while nearly one in five expects it to drop by at least 15%.
Millionaires have also lowered their expectations for their own investment returns, although they are still more optimistic about their returns than the broader market. One in four respondents expect to post negative returns, and a majority expect returns below 4%.
Last year, half of the millionaires surveyed expected returns of at least 6%.