Over the course of 2023, investors became increasingly optimistic about the stock market. In December, investors expected stocks to return 5.7% over the coming 12 months, 1.3 percentage points higher than in October. That level was more than double their expectation of 2.7% for 2023, as reported in December 2022. This heightened optimism is on par with the positive outlook in December 2021, when investors anticipated a 6% stock market return for 2022. Investor expectations for stock returns over the long run (defined as the next 10 years) rose slightly to 7.2%. That’s higher than Vanguard’s 10-year forecast, which ranges from 4.2%–6.2%.

“Investors are brimming with confidence going into 2024,” said Xiao Xu, an analyst in Vanguard Investment Strategy Group. “Their optimism about the stock market has hit its highest level in two years, following the recent surge in U.S. equities.” 

Investors’ expectations for average GDP growth over the coming three years held steady for most of 2023 but rose sharply to 3.5% in December. That is among the highest levels observed in our survey’s history. This upswing in optimism echoes sentiments last witnessed in early 2022, just before rate hikes and recession fears kicked in. GDP expectations for the coming decade went up slightly, by 0.1 percentage points, to 3.9% growth.

“Investors expect the economy to consistently improve in the next few years,” Xu said. “Economic optimism has reached levels not seen since February 2022, buoyed by economic outperformance in 2023.” 

The Fear and Doubt Index trended downward over the course of 2023, approaching pre-pandemic levels. In December, investors believed there was a 5.3% chance that the stock market would drop by 30% or more over the coming 12 months. This was 0.7 percentage points lower than the previous month and 0.2 percentage points lower than our survey’s historical average.

Investors lowered the odds of an economic disaster by 0.5 percentage points to 5.4% in December.

In 2023, both elements of the Fear and Doubt Index were well below peaks observed in 2022.

“As the calendar turns to 2024, investor concerns about market and economic disasters are largely in the rearview mirror,” said Andy Reed, head of investment behavior research at Vanguard. “Fresh memories of 2023’s bull market and resilient economy are keeping investors’ spirits high as we return to sound money in 2024. Investor sentiment seems to be turning back the clock to pre-pandemic times.”

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 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 about 2,000 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.

• Vanguard’s economic and market outlook for 2024 (hub, issued December 2023)
• Investor Pulse: Optimism begins to fade (article, issued November 2023)
• Labor market pulse: Hiring softens; more so for women (article, issued October 2023)