As advisors and clients head into the holiday season, the festivities appear to be lifting retirement savers' spirits.
Retirement confidence shot up last month, according to Arizent's proprietary Retirement Advisor Confidence Index (RACI), as good news about the economy and hopes of a "Santa Claus rally" boosted clients' optimism.
From October to November, RACI's composite score — an amalgamation of different confidence indicators — jumped from 47.7 to 50.9. A score below 50 means confidence is declining, while anything above 50 means it's increasing — which means the trend switched directions last month, from sinking to rising.
"There is some optimism going into 2023," one advisor told RACI's survey.
The good cheer was driven in part by an increase in clients' risk tolerance, which continued its steady ascent from three months ago. In September, the score bottomed out at 38.2. But it rallied in October, climbing to 42.6, and rose again in November, jumping to 48.3.
Investment in equities also increased, leaping from 50.97 to 57.7. That's a significant turnaround for the score, which had been declining since August.
"With the recovery and potential for a Santa rally, clients wanted more allocation to stocks," one retirement advisor said.
In general, contributions to retirement plans increased — once again, reversing the trend since August. After declining in September and October, the total contribution score rose in November from 55.38 to 59.7.
"Clients were more optimistic in November than in October, so more retirement plans were established and more assets were allocated to funds vs. cash," an advisor said.
Advisors pointed to a number of factors to explain the improved mood. Most importantly, November was a good (if uneven) month for the stock market, which continued its wobbly recovery since the summer. The S&P 500 finished the month up 5.4%, while the Dow Jones crept up 5.7%.
"[We] believe we are closer to the end of the bear market than the beginning," one advisor said.
Others credited encouraging economic data. Investors learned last month that inflation had slightly cooled, easing down from 8.2% in September to 7.7% in October. Also encouraging was the October employment report (released in November), which showed the U.S. economy had added 261,000 jobs.
But most of all, advisors breathed a sigh of relief over recent news about interest rates. In November, the Fed once again raised the federal funds rate by 0.75%, causing pain for the stock market. But later that month, Chairman Jerome Powell signaled that rate hikes may begin "moderating" as early as December. For many advisors, that was music to their ears.
"There is more equity risk tolerance due to the expectation of easing of the Federal Reserve's aggressive hiking of interest rates," one advisor said.
"With finally a break in the inflation numbers, clients have been hopeful of a slowing Fed and potential economic expansion happening sooner rather than later," another said.
Not everyone has been sharing the Christmas cheer. Many advisors said layoffs, inflation and the war in Ukraine were making their clients nervous.
"People are scared," one advisor said. "They hold onto their money, they don't know what to do. The economy seems weak right now."
"Recession is still the expectation," another wrote in all capital letters.
Others looked to the new year with a mix of trepidation and hope. Few knew what to expect.
"Inflation is waning but risk of recession is growing," one advisor said. "Which will be the biggest factor?"