Millionaires are raising cash on fears that the Fed can’t tame inflation and stave off recession

Traders work on May 9, 2022, in New York City, U.S.A. 

Brendan Mcdermid | Reuters

According to CNBC’s Millionaire Survey, American millionaires are raising money to combat inflation fears.

CNBC interviewed millionaires and ranked inflation the top threat to their personal wealth and the economy. Since 2014, inflation has topped all other risks in the ranking. According to the results, 42% of millionaires believe inflation will last at least one year. Another 19% claimed it would last for more than two years.

The survey included investors with at least $1,000,000 in investable assets. It was conducted in May. It surveyed approximately 750 respondents. Since the survey was conducted, a readout of consumer prices found inflation accelerated further last month and the S&P 500 slipped into a bear market, more than 20% off its recent highs.

George Walper of Spectrem Group, who conducts the CNBC Millionaire Survey said, “Clearly, there’s a shift toward a very pessimistic concerned view.” “They don’t believe that the Federal Reserve can solve these problems.”

Wednesday’s increase in the benchmark interest rate by the Federal Reserve was 75 basis points.

The survey found that millionaires are divided over whether the Fed can slow inflation or reduce the demand without causing a slump. Nearly half of respondents said that they are “not at any time confident” about the Fed’s ability manage inflation. However, 35% of respondents said they were “not at ALL confident”.

The Fed’s views diverge largely based on political affiliation. Most Republican millionaires say they are not at all confident in the Fed’s ability to manage inflation. However, most Democratic millionaires say they are “somewhat confident.”

More than 25% of millionaires believe that the U.S. is already experiencing a recession. 34% also predict that the U.S. could be in recession this year. Only 21% stated that the U.S. was not heading for a slump.

Walper stated, “They’re very clearly worried about a recession. We’ll only find out in six months if we’re in one.”

Millionaires hold approximately 90% of all stocks held in the U.S. According to the survey, they have not panicked or sold any stocks so far. Increasing interest rates have led to many people raising more cash and putting more money into fixed income investments.

Nearly 40% of millionaires stated that they intend to make changes to the portfolio or have already made adjustments due to inflation. 44% said that they have more money in cash and 41% said they have bought more fixed-rate investments. 35% of those surveyed said they had bought equities and 31% said that they had sold equities because of inflation and its effect on certain stocks.

Wealthy investors often take advantage of market drops and buy during major ones. Millionaires are not likely to buy the recent market falls, which suggests they see more pain ahead for interest rates and markets.

Walper stated, “When volatility slows down or people feel that we’re near the bottom, this group makes moves and searches for distressed opportunities and good value.” “They did it April 2020. But that’s not what we see now. They don’t expect this to end anytime soon.”

According to the survey, 58% of millionaires believe that the economy will be weaker or much weaker by the end. Most also expect the S&P 500 to end the year down double digits: More than half of those surveyed expect the S&P to be down at least 10%, while nearly one in five respondents expect it to be down at least 15%.

Millionaires have also ratcheted down their expectations for their own investment returns — though they’re still more bullish on their returns than the overall market. One in four people surveyed expects to see negative returns and most expect returns below 4%.

Half of millionaires polled expected returns below 6% last year.

Source: CNBC

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