For first time since Covid bear market, wealthy expect stocks to drop

It is hard to miss inflation in the recent numbers, and maybe even more so, the fear that inflation is going to hang around a lot longer than the Federal Reserve and investors would like. You may see it at the pump, in food prices, or the housing market, and for those who follow stocks, you definitely hear about it in the billionaire investor talking points.

Billionaire hedge fund manager Paul Tudor Jones said inflation may be worse than feared for both the markets and society. Bill Ackman called last week for the Federal Reserve to start raising rates as soon as possible. David Tepper said stocks don’t look like a great investment from here, but it all depends on rates.

You get the picture.

Warren Buffett, not fond of short-term calls on the economy or market, had plenty to say earlier in his career about what inflation can do to stock market wealth. Buffett’s view of inflation was heavily influenced by the runaway inflation of the 1970s. “Inflation is a far more devastating tax than anything that has been enacted by our legislatures,” he wrote in 1977. “The inflation tax has a fantastic ability to simply consume capital. … If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner.”

What the billionaires think and do is pretty far from lining up with the investment reality of most individuals, so take it down a few zeroes, what are wealthy do-it-yourself investors — individuals with at least $1 million in a brokerage account that they manage on their own — thinking right now?

They are increasingly worried, too, according to a survey from Morgan Stanley’s E-Trade Financial of millionaire investors provided exclusively to CNBC. According to the quarterly E-Trade data, these wealthy investors have not been this concerned about their stock market holdings or the economy since Q2 2020, right after the March 2020 Covid crash and shutdown of the U.S. economy

“We’re definitely seeing a downtick in optimism,” said Mike Loewengart, managing director of investment strategy at E-Trade. “They are starting to see some cracks in the economic recovery and it’s dampening bullishness.”

More of the wealthy still describe themselves as bullish, but just barely, with that indicator dropping from 65% in Q3 2021 to 52% in the current quarter. That’s the lowest level of bullishness since Q2 2020.

The E-Trade survey was conducted October 8 to October 16 among 119 investors with $1 million or more of investable assets.