Investor Pulse: Both optimism and uncertainty about 2025

A persistent and steady expected outlook made 2024 the most optimistic year investors have experienced over the history of our survey. Over the course of last year, investors’ expected return over the next 12 months stayed above 6%, reflecting elevated and sustained optimism. For 2025, investors are carrying forward this optimism and are currently expecting the market to return 6.4%. Over the next 10 years, investors expect the annual market return to average 7.6%.

“Investor optimism reached a new cruising altitude in 2024 and stayed there throughout the year,” said Xiao Xu, an analyst in Vanguard Investment Strategy Group. Although individual investors are bullish about market returns heading into 2025, professional forecasts, including the Vanguard Economic and Market Outlook, are calling out stretched U.S. equity valuations. 

Investors’ expectations about average GDP growth over the coming three years softened over the course of 2024, despite strong economic growth over the year. Although growth expectations are still in a fairly optimistic range, the run-up from the trough of June 2022 may have come to an end. Expected GDP growth over the next 10 years remains high at 4%.

“It looks like investors changed their short-term economic outlook over the final months of 2024,” said Xu. “It could reflect people’s concerns about growth that results from the increasing complexity in the current economic environment.” 

Inflation expectations throughout 2024 hovered around 3%, a level above the Federal Reserve’s policy target of 2% but consistent with headline inflation throughout the year. With reported inflation ticking up in recent months, the median inflation expectation rose by 0.2% at the end of 2024; that is, investors expect inflation to be 3.2% during 2025.

“Investors remain cautiously optimistic about the stock market and economy heading into 2025,” said Andy Reed, head of investor behavior research at Vanguard. “They’re bullish about growth but bearish on inflation.”

Do investors believe that the Fed will be able to bring inflation down to its 2% target by the end of 2025? Since June 2024, we have asked survey participants to estimate the probability of different U.S. inflation scenarios over the next 12 months. In the second half of 2024, investors believed it was increasingly likely that inflation would remain above the 2% target, with their assessment of the chance increasing from 65% in August to 70% by December.

As of December 2024, investors believe there’s a 15% chance that inflation will be above 6% in 12 months, well above the 9% chance they estimated back in August. Similar to professional forecasts, including Vanguard’s economic and market outlook, uncertainty surrounding potential trade policies may be a key factor on many investors’ minds. 

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 11 brief questions about U.S. stock market, economic growth, and inflation expectations to a random sample of about 2,000 Vanguard personal and 401(k) plan investors. Questions on inflation expectations were added in 2024. It is conducted in partnership with academic researchers Stefano Giglio of the Yale School of Management, Matteo Maggiori of the Graduate School of Business at Stanford University, and Johannes Stroebel of the Stern School of Business at 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.

• Navigating 2025: Some key insights from the past year (article, issued December 2024)
• Beyond the landing: Our economic outlook for 2025 (video, issued December 2024)
• Labor market pulse: Firms hiring at lower rates (article, issued November 2024)