Bearish sentiment has risen to 42% as investors confront persistent inflation, rate-hike prospects and election uncertainty
Retail investor confidence slipped further in the fourth quarter of 2026 as a convergence of persistent inflation, rising rate-hike expectations and uncertainty surrounding the November midterm elections pushed bearish sentiment to its highest level in over a year, according to Morgan Stanley Wealth Management's Q4 2026 Investor Pulse Survey.
Conducted between October 1 and October 23 among 953 US investors, the survey found bearish sentiment reached 42% this quarter, a four-percentage-point increase from Q3 2026 and a sign that the wall of economic and political headwinds facing markets is beginning to erode confidence among everyday investors.
Inflation stays at the top of the worry list
Inflation remained the dominant concern among investors surveyed, cited by 54% of respondents, up two percentage points from the previous quarter.
Rising rate expectations are adding to that unease. Following the Federal Reserve's first rate increase in more than three years, 34% of investors now expect another hike at the next meeting, up from 27% in Q3. That shift matters for advisors navigating fixed income allocations and client conversations about portfolio risk heading into year-end.
Midterm elections add a political dimension
Political uncertainty is compounding investor anxiety. Nearly half of survey respondents (48%) said they are concerned about the potential impact of the midterm elections on the stock market. With the November 3, 2026, vote now days away, those concerns are unlikely to fade quickly.
That level of client anxiety around elections is not unusual. Research into how wealthy investors are approaching the 2026 midterms has found that demand for financial advisor guidance tends to spike during election cycles, with clients eager to understand the implications for their portfolios before the results are known.
"There's no shortage of market and economic headwinds to make investors cautious as we approach year-end," said Chris Larkin, managing director and head of trading and investing at E*TRADE from Morgan Stanley. "Market fluctuations are inevitable, and periods like this are when discipline matters most. Investors seem to understand that — even as they brace for potential volatility, they're staying focused on the bigger picture."
Most investors are sitting tight
Despite the gloomier outlook, the survey found that most investors are not making drastic changes. More than four in five respondents (86%) said they believe their portfolio is well-positioned against inflation. And 42% reported they do not plan to make any changes to their allocations over the next six months, up from 39% in Q3.
That inertia may reflect a learned response to repeated market scares. Advisors have been working to keep clients on track through a turbulent stretch that has included tariff anxiety, geopolitical disruption and swings in Fed policy expectations.
Sector preferences for Q4
The survey also asked investors which sectors they see as offering the most opportunity heading into the final quarter of 2026.
Information technology retained its top position at 55%, supported by continued appetite for artificial intelligence exposure. Energy climbed four percentage points to 47%, ranking second, as geopolitical uncertainty and concerns about oil supply kept the sector in focus. Health care held third at 33%, reflecting its appeal as a defensive allocation in a choppy market environment.
The survey was fielded by Dynata and carries a margin of error of plus or minus 3.20 percentage points at the 95% confidence level. The panel comprised self-directed investors, fully delegated investors and those using a hybrid approach, with investable assets ranging from below $500,000 to over $1 million.
