Majority of US retail investors (55%) will adjust their portfolios ahead of expected rate cutting cycle
- Investors aged 35-44 are leading the charge in preparing for rate cuts, with 81% tweaking their portfolio
- Even with rate cuts on their minds, 24% of investors cited inflation and the state of the US economy as the biggest perceived threats to their portfolio
- Cash continues its reign as king with 77% of investors holding cash assets, up from 71% in Q4 2023 and the most held of any asset class
Tuesday, March 26, 2024 – As speculation about rate cuts intensifies, investors are preparing their portfolios. According to data from the latest Retail Investor Beat from trading and investment platform eToro, 55% of US retail investors are adjusting their investment portfolio in anticipation of the Fed cutting interest rates.
Investors most actively anticipating cuts are those under 45 years old, as 78% of investors aged 18-34 and 81% of investors aged 35-44 have either already adjusted their portfolios for rate cuts or plan to take action in the near future. Signs that US investors are preparing for rate cuts were also visible in the way that more investors reported holding sectors such as discretionary consumer goods and staple consumer goods, both of which stand to benefit from rate cuts.
Financial services and tech remained the two most held sectors by US retail investors. However, despite big tech’s recent market dominance, a significant number of investors (24%) – particularly the younger cohorts – say they intend to scale back investments in the so called ‘Magnificent 7’ tech stocks this year. The trend suggests that forecasts of a potential 2024 market rotation away from big tech are hitting home with some investors.
Commenting on the data, eToro analyst Bret Kenwell said: ”Younger investors appear to be taking a more opportunistic approach to their portfolios as the rate cut discussion heats up. With younger investors looking to start or continue building wealth, the prospect of lower interest rates presents an opportunity to ride cyclical sectors to a bull market. It also gives space for more companies to shine, outside of the recently dominant Magnificent 7, who were able to weather the high rate environment where others struggled.”
To prepare for the rate cut cycle, 40% of US retail investors indicated that they would hold less money in cash assets. However, investors are still holding onto their cash assets for the time being, potentially to capitalize on the better savings rates associated with high interest rates before they disappear. Nearly four out of five (77%) investors reported holding cash, a 6% increase from Q4 2023, as uncertainty around the first rate cut grew throughout the beginning of 2024. Moves to hold onto cash come as 24% of retail investors cited inflation as the biggest threat to their portfolios, tied with the state of the US economy.
Even with these lingering concerns, 73% of investors said that they were confident in their investing portfolios, including 80% of male investors. Confidence in investing portfolios was down 7% quarter-over-quarter amongst women, but two thirds (66%) of female investors still expressed confidence in their portfolios amidst pesky inflation and uncertain macroeconomic conditions.
Bret Kenwell adds: “Retail investors continue to show sophistication in managing their portfolios by investing in sectors that stand to benefit from rate cuts, while also maintaining cash assets in the current high interest rate environment. This sophistication can help explain why investors are confident in their portfolios, even as inflation appears sticky and concerns about the economy remain.”
As investors navigate this high-rate environment while simultaneously preparing for rate cuts, they are turning to a variety of sources for insight and guidance on investing. Amongst all investors, Google (33%) was the most used source for information, followed by financial influencers (30%), the media (28%) and personal recommendations (25%).
However, looking at differences between age groups, there is a trend toward newer digital sources. Overall, 61% of retail investors said that they mainly follow guidance from financial influencers, online forums or social media, but there is a clear drop off among older investors. For investors ages 18-34 78% said that they follow investing guidance from financial influencers or social media, and 81% of investors ages 35-44 said the same. Compared to younger generations of investors, just 43% of investors 55 and older said that they mainly turn to financial influencers, online forums and social media.
Bret Kenwell adds: “The shift from traditional sources of information for investing such as financial education classes and materials to financial influencers, online forums and social media illustrates how the role of community in financial education has evolved across generations. Community plays a big role with investors turning to sources that offer relatable, accessible and relevant information when making decisions about their portfolios.”
ENDS
Notes to editors
About this report
The latest Retail Investor Beat was based on a survey of 10,000 retail investors across 13 countries and 3 continents. The following countries had 1,000 respondents: UK, US, Germany, France, Australia, Italy and Spain. The following countries had 500 respondents: Netherlands, Denmark, Norway, Poland, Romania, and the Czech Republic.
The survey was conducted from February 15th – March 5th 2024 and carried out by research company Opinium. Retail investors were defined as self-directed or advised and had to hold at least one investment product, including shares, bonds, funds, investment ISAs or equivalent. They did not need to be eToro users.
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