A trader blows gum during the New York Stock Exchange opening bell on August 1, 2019 in New York City.

Johannes Eisele | AFP | Getty Images

If the market is in an everything bubble, wealthy Americans are heading into 2022 saying they really don’t want much more – nothing, according to a recent CNBC survey of millionaires.

Sentiment among high net worth investors is still bullish, although it is moderating, with millionaires anticipating higher interest and tax rates in 2022. More millionaires (41%) say the economy will strengthen l next year, up from 35% who say it will weaken, according to the recent CNBC Millionaire poll. Just over half (52%) of millionaires expect the S&P 500 to end 2022 with a gain of 5% or more.

But it is another finding from the CNBC survey that is most revealing, and signals a decline in millionaire enthusiasm in the market, and an overall risk appetite that has weakened, even as the market went through the last omicron and the Fed fears the S&P 500 has set a new high and the Dow Jones Industrial Average remains near its all-time high.

Twice a year, the CNBC Millionaire Survey asks investors what major asset classes they plan to increase their exposure to over the next year. Investor appetite for each type of investment is now lower than in the spring 2021 survey. The percentage of millionaires who say they will increase their investments has fallen across all asset classes, including stocks, investment real estate, alternative investments, international investments and precious metals.

For the CNBC Millionaire Survey, Spectrem Group surveyed 750 Americans with $ 1 million in investable assets in October and November.

I can’t take more risks, I can’t get out of the market

“The market is high and people are nervous,” said Lew Altfest, CEO of Alfest Personal Wealth Management. “Our customers are scared, but none of them are about to come out,” he said. “They do not have the courage to withdraw,” he said.

“You can’t really take a lot more risk when it comes to fresh dollars,” said Doug Boneparth, president of Bone Fide Wealth. “What are you going to do? Empty all your large caps and invest in all emerging market stocks. Nobody is doing that,” he said.

Thirteen years after the start of a bull market, and after a sharp increase in volatility last year that was resolved with government stimulus and the Fed printing more money, “there is limited room for maneuver , so maybe you take your foot off the pedal here, “Bonparth says.

This doesn’t mean that there are market conditions that would amount to a significant reduction in risk, but it does make sense if people step back and reassess their portfolios. “It has been quite the adventure and the appetite for risk has only increased in the not so distant past,” he added.

Inflation, the Fed and the economy 2022

Even though the rich are less enthusiastic buyers of stocks, they are buyers of goods, and the economy will do well – and corporate earnings are a part of it – as long as outside of stocks they will continue to buy. all at higher prices, Altfest said. When people are tired of spending freely, he said, is more important to the economy and the market than when the rich reduce their risk appetite a bit across all asset classes.

After two overwhelmingly positive years for the market in 2020 and 2021, investors are digesting information on inflation and whether that means they should expect a slowdown in equity growth in the near term.

“These two things set the table: how much more risk can you take on top of that? Bonparth said.

“Fear is very evident in all of our meetings,” said Michael Sonnenfeldt, founder and chairman of Tiger 21, an investment network for the wealthy.

But for the rich, inflation is not an immediate threat. “If you’re worth $ 10 million and you live on $ 200,000 a year, even though there’s 6% inflation, inflation won’t change your lifestyle,” Sonnenfeldt said. For the rich, the anxiety of inflation does not equal the legitimate concern of the less fortunate in society about food budgets or the purchase of a new car. But there’s no denying that inflation can erode the value of their assets, Sonnenfeldt said, making it harder to weight inflation against investments after a period when investors took advantage of such an extraordinary market.

“Assets have grown more than inflation this year, more than they eroded… but next year could be a double whammy, where if inflation rises and the market is stable you see an erosion of value, ”he said. “At least this year there was no reason to panic and the wealth conservators grew their assets faster than the rate of inflation because the Fed flooded the market. I don’t know a lot of people in it. a phase of preservation of assets which have not outperformed inflation this year “, he added.

“People are still digesting Covid and elections, and because of that, a bit of a wait-and-see mode,” said Tom Wynn, director of research at Spectrem Group. “People have to see what’s going on with inflation and taxes, and no one is really taking a position one way or another that things are much worse or better, that’s my point. view, ”Wynn said.

Big stocks and boomers

Altfest wouldn’t advise an investor to time the market, go full or bottom, but he has told investors sitting on huge gains in stocks like Microsoft that it’s time to sell some of their money. assets. It’s not a conversation that he says has always gone well.

“A lot of people say the market has been good for me and this is especially true for people with growth stocks,” Altfest said, adding that the majority of the S&P 500’s recent gains have come from four technology companies, including Microsoft.

When investors turn to basic equity analysis again, “what you can’t do without are multiple price / earnings, even with rapid growth in corporate earnings. It can’t grow forever. and PEs are very high, ”Altfest mentioned.

The pressure between holding such successful winners but worrying about the future course of the economy and the market leaves investors in a position described by Alftest as “barely bullish for equities”.

Mitch Goldberg, chairman of investment advisory firm ClientFirst Strategy, said whenever someone tells an investor to “take a little off the table at Apple and Microsoft … whoever told them they got it.” deceived. But the key is that it will be fair. ultimately. But we don’t know the time. “

Take the risk the right way

An investor who hasn’t made any changes to their portfolio this year now owns more stocks just by staying stable, given recent bullish stock market conditions and low bond market yields, Goldberg said. And many investors are not quick to rebalance after periods of appreciation in particular asset classes, compounding the process of having greater exposure, in this case, to equities. And Goldberg said that for most investors, that’s a position they’re going to stick with.

“There is no alternative,” he said. “From what I see, investors are more fearful, but they are not acting on it,” he said. “To me it’s a form of complacency, it’s like waiting for a bell to ring and they can get out before the market collapses.”

Older investors who don’t need the money in the market to meet their immediate needs, including baby boomers who have done well in stocks and have at least several years left in the time horizon market, do not need to reduce their overall exposure to equities, but they should think about reducing the composition of the stocks held, Goldberg said. Although they have stayed away from meme stocks and pandemic stocks, they have also increased the value of stocks in other parts of the market, such as consumer staples and dividend stocks, and stocks. main technological leaders.

Taking risk off the table does not necessarily mean major changes in an overall portfolio asset allocation plan.

Bonparth told him that “taking the risk off the table” can mean going from a split of 90% stocks to 10% fixed income at 80% to 20%.

Going from “uber aggressive to just aggressive” shouldn’t cause an investor to jump out of their seat, he said.

Many investors make the mistake of pulling out of a market altogether and this “smart money” approach is more often than not a loser, he said. But Boneparth added: “These are returns so above their historical averages that they really forever create the question, ‘When is this correct?'”

“Let’s not get out of control. Let’s put in context that we have less risk, no drastic changes, not to mention decreases, but not adding,” Boneparth said.