Why wealthy investors stay bullish on markets and tech stocks

Recent Dow Jones Industrial Average The 900-point daily plunge didn’t stick, but Nasdaq Tuesday reversal Lead the market low, And with Dow S & P 500The down day for the first time in six years made me feel uncomfortable just before Big Tech’s earnings.

A recent survey of stock traders over $ 1 million in FCMs found that the bull market resumed quickly and that a day’s fall in technology and other equities would stop the current bull market from continuing. There is one reason why it is not. Wealthy and veteran investors remain confident in their third-quarter earnings, a little more bullish than just a quarter ago, and the opportunity to pursue the strength of the US economy and the interests of the tech sector.

According to a survey of Morgan Stanley’s E-Trade Financial voluntary investors, billionaires who describe themselves as bullish increased by 7 points from 58% to 65% of investors quarterly. The largest group of millionaires expects profits to be modest, with just under half (46%) forecasting maximum profits of 5%. However, few predict the big dip that bears are afraid of. Only 6% of survey respondents say the market will fall by more than 10% this quarter.

The trader works on the floor of the New York Stock Exchange (NYSE) in New York City, USA on July 13, 2021.

Brendan MacDermid | Reuters

“They are still optimistic that Burlan will continue, but the expectations are a bit more realistic, recognizing where we are and how far the stock market has recovered,” said Mike Levengart. “., Managing Director of E-Trade, Investment Strategy.

The E-Trade survey was conducted from July 1st to 9th, targeting 898 voluntary active investors, from 157 investors with more than $ 1 million in investable assets exclusively for CNBC. I got the result.

Economic growth can still be disappointing

Wealthy people are improving their outlook for the US economy as inflation concerns continue. The percentage of millionaires who rated their economies A or B grade this quarter rose 13 percentage points from the second quarter, rising from 39 percent of the minority in the previous quarter to 52 percent at the beginning of the third quarter. did. Those who were uncertain in the second quarter (44% who rated the economy on a C) moved to a more bullish camp, dropping to 29% of millionaires this quarter. Forty-one percent of millionaires described the current economic period as “expanding.” This increased from the 30% that had that view in the previous quarter.

“Optimism has psychological momentum,” said Lew Altfest, CEO of Altfest Personal Wealth Management. However, he added that the virus could still reverse it, as evidenced by a 900-point drop in Dow when focused on the delta variant. CDC is currently revising masking guidance Being more cautious indoors again — although he believes that the greater risk to investor sentiment is that growth is not as good as current expectations. “The optimistic view that I have shared above-average growth over the long term is something we can still have, but the logical situation is sometime next year, less than a year from now. Consider normalized growth, but it’s not. What people want to hear. “

That’s why bond markets haven’t responded to the Fed’s debate over inflation and rate hikes by boosting yields. In fact, yields have fallen in recent weeks due to concerns about economic growth below the stars.

Investors want to believe in a rosy outlook, according to Altfest, and given the sudden recession caused by Covid-19, the year-on-year increase is high, but economic growth will settle from 2% to 2.5%. , “It may be psychological calm.” An event for investors, especially in the light of the high reputation of the US stock market.

“From a financial and financial point of view, a lot of gasoline was thrown into the fire,” said Levengart, some of whom existed before the pandemic in the form of Trump tax cuts. No way. “He said. “It’s important to keep that in mind. Growth remains elusive. We start from a low foundation with pandemics and very accommodative policies, but it’s still challenging.”

Tech’s appeal is revenue consistency

After even the largest technicians were found vulnerable to temporary sales behavior in the second quarter, high net worth technicians emerged as the best bet in the third quarter. According to E-Trade, millionaires who say the tech sector is the best opportunity for profits in the third quarter increased by 12 percentage points. This is an increase brought about in the face of lower bond yields and the continued strength of technology, acting like a bond agent.

Forty-six percent of the wealthiest investors surveyed by E-Trade chose technology as their number one target for profits this quarter. This is up from 34% in the second quarter.

“Tech’s great appeal in large cap stocks is that it brings rain or brilliance to earnings,” says Altfest. “Technology is always cyclical in people’s minds, and I think there’s a good reason, because people have always been hit by high price-earnings ratios, but this cycle since 2008 It wasn’t just IBM … Now we see a lot of growing companies and less competition. “

Antitrust scrutiny continues to be rigorous, and concerns about the power of trillions of dollars in tech companies are a matter that many Democrats and Republicans agree on. “Somewhere here, these companies will have clouds above them, but not so much that people aren’t interested,” Altofest said.

“I’ve seen millionaires go back to their old favorites,” Loewengart said. “We’ve seen value outperform for a while, but later attracted investors when technology performance improved and technology bounced back in the second quarter … These are working, “he said. “See Apple saying it’s increasing iPhone production. From a business fundamentals perspective, it’s hard to ignore our daily lives.”

There is no single dominant sector for third quarter profits

Technology ranked first among these wealthy investors in terms of sector appeal, recovering sharply from last quarter’s view, but less than the majority’s view, at 46%. Investors also remain interested in energy, a high-value sector since the beginning of the year.

Energy showed the second-largest rise in interest after technology, rising 6 percentage points among millionaires who chose it as their top target, rising from 23 percent in the previous quarter to 29 percent in the third quarter. I did. Meanwhile, reopening transactions are easing by one million millionaires, and consumer discretion has been ranked as the focus of this investor group from 31% last quarter to 19% this quarter. increase.

“They have a more balanced view of where the opportunities are,” Levengart said.

Optimism continues despite concerns about the bubble

According to the survey, millionaires are much less likely to believe that the market is in a bubble, with the bubble dropping 11 percentage points quarterly, significantly lower than the broad investor population E-surveyed (14). % Low). trade.

According to Altofest, people aren’t too worried about the rating, and the most noisy bears like Jeremy Grantham have proven to be wrong, at least for now, but it’s the new “Roaring Twenties.” It does not mean that the recent belief in “” will work. “I’m not very enthusiastic about it, but I think it can happen, but if it doesn’t happen, I look back at the high P / E and say,” What do you think if you could see this? A temporary surge? Was it? ”

The stock market adopted what Loewengart described as a break in the second quarter, but at the beginning of the second quarter, some investors seemed to expect the bubble to burst. “We’ve seen how resilient the market is, and that’s what drives this sentiment,” he said.

Bubble concerns remain the majority’s view. Fifty-six percent of HNWIs said the market was in a bubble or slightly bubble state, which is confident that HNWIs are confident in the durability of the market compared to 70% of all investors who have that view. Indicates that you have.

Billionaires aren’t betting on the Fed about inflation

Inflation concerns are real, with wealthy investors citing the most risk to their portfolios in the survey, with 32% of millionaires saying they are the biggest concern. But that doesn’t make a big difference in how wealthy people place their money in the market.

“Clearly few millionaires act on inflation as the general public,” Levengart said. “It surprised me, in line with the view that the economy is recovering, and because higher rates will eventually accompany this growth.”

A minority of wealthy investors (30%) said they chose stocks based on interest rate sensitivity, while a minority said inflation made them real estate investment trusts (19%), cash (18%), Securities (16%), or commodities (15%), said they were transitioning to inflation protection by the Ministry of Finance.

“There is no doubt that inflation is a concern. In general, we see the market as unaffected by all short-term concerns, but we have a long-term view of investment,” Levengart said. rice field. “Investors are generally in line with Powell and trust the Fed’s valuation. We know they are totally committed to equities, and equities are of course time. Suitable for inflation over time. “

Altfest believes that dramatic temporary increases will diminish, but long-term inflation will only rise “not as high as it is today.”

The bond market has shown that it is not worried about inflation as it is unlikely to see significant economic growth going forward, and there are warning signs that lower economic expectations could hurt equities, but Altofest said. , States that the signs remain calm for now. Second quarter. Equities are cheaper than in history, as the 3% yield on 10-year Treasuries is still far away.

“We’re still far from that, but at a rate of 3%, bonds really represent more people a true competition for equities,” Altofest said. “At that point, the P / E party is over, investors have to focus on the economy and see if the company’s profits are growing at a reasonable rate.”

Hot Robinhood Trading Between Losers

At a time when optimism continues and more wealthy stock market investors are returning to a “favorite” view, interest in the recent stock boom and vigorous trading has diminished. increase. While the majority of the millionaires surveyed by E-Trade in the last quarter is never chosen, respondents pointed out that some of the recent hot areas of the market are not very attractive. ..

Interest in clean energy stocks declined quarterly from 46% to 35% of these investors. Interest in IPOs has dropped from 30% to 23%. Interest in SPACs dropped from 26% to 19%. Interest in cryptography dropped from 27% to 19%.

“What happened with meme stocks is extraordinary, but millionaires recognize the extraordinary implications,” says Loewengart.

Why wealthy investors stay bullish on markets and tech stocks

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