May 26, 2023
Investors were feeling a bit less optimistic and hiring cooled in April, according to Vanguard research. In our first survey since the shuttering of some U.S. regional banks, investors expressed somewhat lower expectations for stocks and the economy, and our Fear and Doubt Index ticked up. Still, investors remain less pessimistic now than they were during much of 2022. Not only did investor sentiment decline, but hiring dipped in April as well.
Our “Investor Pulse” analysis of investor expectations and hiring dynamics in April 2023 is drawn from two sources. The first source is the Vanguard Investor Expectations Survey, which canvasses over 2,000 Vanguard investors regarding their outlook on the stock market and the economy. The second is hiring data based on new participant enrollments in a sample of roughly 1,000 employer-sponsored retirement plans administered by Vanguard.
U.S. stock returns: Short-term expectations dipped
In April, investors expected stocks to return 3.7% over the coming 12 months. While that represents a decline from 4.4% in February 2023, it remains above 2022 levels and not far below their historical average, suggesting that investor sentiment is running neither hot nor cold at the moment.
“The decline in April reverses a trend of increasing optimism seen since October 2022, but history shows that investors’ short-run expectations rarely rise for more than two consecutive surveys,” said Andy Reed, head of investor behavior research at Vanguard. “In fact, given the headlines about bank failures and the government debt ceiling, we would have expected investors to be even more skittish about the near term.”
Expectations for annual returns over the next 10 years stayed strong at 7.1%.
Short-run stock return expectations slipped in April but remain well above 2022 lows
Notes: This chart and the two charts that follow show results from the April 2023 Vanguard Investor Expectations Survey of a random sample of approximately 2,000 Vanguard personal and 401(k) investors.
Source: Vanguard, as of April 2023.
The U.S. economy: Investors dialed back their outlook for growth
Investors’ expectations about average annual GDP growth over the coming three years dropped about 0.3 percentage points to 2.9% in April, reversing a period of rising expectations that began in June 2022.
Expectations for the coming decade declined by the same amount to 3.8% but remain higher than their historical average.
“Investor expectations for the economy seem to mirror their outlook for the stock market,” said Tom De Luca, a senior investment strategist in Vanguard Investment Strategy Group. “We saw a slight dip in April, but nothing out of the ordinary when you consider the typical fluctuations in survey results over time.”
Investors have trimmed their expectations for economic growth over the short- and long-run
Source: Vanguard, as of April 2023.
The Fear and Doubt Index edged just above historical averages
In April, investors believed there was a 5.8% chance that the stock market would drop by 30% or more over the coming 12 months, a slight increase from two months earlier, when they saw only a 4.9% chance of that happening.
Investors pegged the odds of an economic disaster slightly higher as well: 6.4% in April, up from 5.6% in February.
While the expected probabilities of both outcomes have risen above their historical averages, they remain well below what was seen during both the COVID-19 pandemic and the 2022 bear market.
“The biggest surprise in the April survey was how modest the uptick in the Fear and Doubt Index was in light of high-profile bank collapses not seen since the Great Recession and the debt ceiling debate,” said Reed. “It would be understandable if investors were starting to feel nervous—yet they seem to be staying on an even keel. Maybe the extreme volatility over the past few years has played a role, with adversity breeding resilience. Or it might reflect an understanding that bad weather may pass. Whatever the reason, investors’ composure may help them resist heading for the sidelines and locking in losses.”
The Fear and Doubt Index showed a subdued reaction to headwinds in March and April
Source: Vanguard, as of April 2023.
Hiring fell by 1% in April 2023 compared to March
As the U.S. Federal Reserve Board has hiked short-term interest rates to combat inflation, it has focused on a tight labor market that has powered strong wage growth and driven unemployment to a 50-year low. “With about 50% of private sector employees participating in workplace retirement plans, most of whom are immediately enrolled in the plan upon hire, enrollment numbers can provide a useful signal for assessing labor market dynamics and the health of the economy,” said David Pakula, a Vanguard investment analyst.
The figure below suggests a strong relationship exists between new enrollments in about 1,000 defined contribution retirement plans administered by Vanguard from 2003 through 2023 and new hires tracked by the Bureau of Labor Statistics (BLS) in its monthly survey of job openings and labor turnover, the “JOLTS” report. From 2003 until 2023, the correlation (a statistical measure of similarity) between these two series has been 0.79.1
“Although the labor market remains strong, our enrollment data show that hires have been trending lower over the past eight months,” said Andrew Patterson, a senior Vanguard economist. “In April 2023, hires fell 1.0% on a monthly basis and 20% on an annual basis—a trend potentially signaling that rate hikes are reverberating through the economy. That said, hires for both measures remain near pre-pandemic levels. Few would describe the pre-pandemic labor market as soft, so the Fed likely has more work to do if they hope to bring down wage and inflation pressures.”
The BLS is scheduled to release its April JOLTS report on May 31, 2023.
Retirement plan enrollments suggest hiring may have dipped again in April 2023
Notes: The last 12 months of the Vanguard hires series is adjusted upward to account for an empirically observed lag in 401(k) enrollment times for new hires. The JOLTS hires series is recalculated based on weights that reflect the industry distribution of 401(k) plans record-kept by Vanguard. Both series are seasonally adjusted using the X-13 ARIMA method. The dataset represents a balanced sample of retirement plans sponsored by firms across all sectors of the economy and of all sizes, which Vanguard has administered since January 2003.
Sources: Bureau of Labor Statistics and Vanguard.
About the Vanguard Investor Expectations Survey
Vanguard’s investor behavior research team has been collecting Vanguard investor expectations on 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.
This 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 Stanford Graduate School of Business, and Johannes Stroebel of the New York University Stern School of Business.
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 what a client thinks compared with the market.
About the retirement research data
Over the past two decades, employers have begun to automatically enroll workers in their defined contribution plans (see Positive signs in a challenging economy by Jeffrey W. Clark on Vanguard.com). In addition, employers have been gradually reducing eligibility requirements for employer-sponsored retirement plans, with more than 70% of plans now allowing immediate enrollment upon hire. These changes in plan design position DC plan enrollments as a window into hiring.
It should be noted that the Vanguard defined contribution retirement plan enrollment data have strengths and limitations. Recordkeeper insights are based on administrative data rather than surveys, making them a potentially more reliable source of information.
One limitation is that despite their high correlation with BLS data, recordkeeping data are not nationally representative. They are biased in favor of the private sector and larger employers that offer 401(k) plans. For example, 30% of the roughly 1,000 retirement plans in the Vanguard sample are in the manufacturing sector but they represent just 4% of total firms in the U.S.
In addition, our data is based on a balanced panel of retirement plans that have existed since 2003, which means that it may contain survivor bias. Employers that change recordkeepers or go out of business would not be reflected in our sample. Finally, our hiring data include some lag in observed hiring dates. We adjust the last twelve months of data upwards to account for common administrative lags between hire dates and 401(k) enrollment. That said, employees who do not initially sign up for the 401(k) plan can typically join the plan in any open enrollment period over the course of their tenure with the employer.
1 In statistics, the size of the correlation coefficient indicates the strength of the relationship between two variables. For positive correlations, the closer the coefficient is to 1, the stronger the relationship. In this case, 0.79 would be considered a strong or large correlation.
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David Pakula, CFA