Investor optimism continued to soar in the first quarter of 2024. In February, investors anticipated a 6.5% stock return over the next 12 months, and this high level of optimism remained steady at 6.3% in April. These expectations significantly surpass the figures from the entire year of 2023, indicating sustained and robust momentum in investor sentiment. Notably, long-term expected returns (over the next 10 years) reached a historic high in our survey history of 7.5% in February and dipped only slightly to 7.4% in April.

“Investors remained bullish throughout the first quarter as the market hit all-time highs,” said Xiao Xu, an analyst in Vanguard Investment Strategy Group. “We haven’t seen this much optimism since mid-2021, when people were eagerly anticipating the easing of the pandemic and before inflation reached its crescendo.” 

The upswing in economic optimism remained intact in the first quarter, with investors in April expecting an annual real GDP growth rate of 3.4% in the short run (next three years) and 3.8% in the long run (next 10 years). This positive outlook aligns with the upward revision in Vanguard’s April monthly investment and economic outlook.

However, investors’ inflation expectations are also at relatively high levels. In the most recent iterations of our survey, we introduced questions to assess investors’ expectations for inflation in the short and long term. Median inflation expectation for the next 12 months increased to 3.5% in April from 3% in February. Median inflation expectations for the next 10 years held steady at 3%.

“Economic optimism remains high,” said Andy Reed, head of investor behavior research at Vanguard. “Yet, it is puzzling that investors’ inflation expectations remain considerably higher than professional forecasts and the Fed target. The trillion-dollar question is whether the Fed can bring down inflation expectations without jeopardizing economic growth or introducing market volatility.”

While concerns about inflation persist, worries about the market and economy have alleviated in 2024. In April, investors believed there was a 4.8% chance of a stock market drop of 30% or more in the next 12 months. This estimated probability was 0.5 percentage points lower than the figure in December 2023 and 0.6 percentage points less than the historical average for our survey. Similarly, the estimated probability of an economic disaster—defined in the survey as an average of –3% annual GDP growth over the next three years—decreased by 0.7 percentage points to 4.7%. Both components of the Fear and Doubt Index have now reached levels typically observed before the pandemic, reflecting a more positive outlook.

“Investors are far less fearful of short-term disaster, with the worries of 2022 receding from memory,” said Xu. “The end of the pandemic-era economy and the decline in inflation have resolved two major uncertainties in people’s minds. However, investors are still watching and waiting to see whether the Federal Reserve can successfully navigate the final stages of combating inflation.”

Vanguard’s Investor Research & Insights team has been collecting Vanguard investor expectations for U.S. stock market returns and U.S. GDP growth since February 2017. The survey runs every other month, in February, April, June, August, October, and December. A special survey was conducted in March 2020 during the pandemic-induced market crash.

The survey poses 13 brief questions about U.S. stock market and economic growth expectations to a random sample of about 2,000 Vanguard personal and 401(k) investors. It is conducted in partnership with academic researchers Stefano Giglio of the Yale School of Management, Matteo Maggiori of the Graduate School of Business, Stanford University, and Johannes Stroebel of the Stern School of Business, New York University.

The survey respondents are a random sample of U.S.-based Vanguard investors invited by email to participate. About 80% of the sample is drawn from our personal investor clients and about 20% from participants in employer-sponsored defined contribution retirement plans. To be included, investors also must have opted in to receive Vanguard statements by email, be over age 21, and have total Vanguard assets of at least $10,000. Overall, this sample group holds about $2 trillion in assets at Vanguard. We receive responses from investors in each period the survey is conducted.

The responses may be of use to advisors, plan sponsors, researchers, and other investors wishing to gauge current sentiment among individual households and calibrate clients’ thoughts compared with the market.

The Fear and Doubt Index is a proprietary Vanguard index based on the bimonthly investor survey we conduct.

• Our investment and economic outlook (article, issued April 2024)
• Why the U.S. dollar remains a reserve currency leader (article, issued April 2024)
• Labor market pulse: Hiring strength for lower-income workers (article, issued March 2024)
• Investor Pulse: Optimism for 2024 (article, issued January 2024)