The movement of assets overseas does not coincide with any increase in skittishness about the U.S. economy. In fact, millionaires are very optimistic about the domestic economy, even more so than in the first quarter, with 70 percent giving the economy a grade of A or B. That's up from 59 percent of millionaires in the first quarter, and also compares to 59 percent of the broader investing population surveyed by E-Trade who showed this bullishness in the April survey. It is worth noting that the survey was conducted from April 1 through April 10, after the health care bill failure and during a stall in the Trump trade. When asked to describe their feelings about the future of the U.S. economy since Trump took office, 65 percent of millionaires said they were optimistic, up from 57 percent last quarter.
"They are seeing through the headlines all the potential red flags that could create volatility or depress equity prices and focusing on the long term. And when they survey the landscape, they still see equities as the best option," Loewengart said. "You could say the high net worth are more experienced, and we've seen it before. They are not so hung up on short-term political moves. It's the nonpolitical macro that drives the market, interest rates and inflation."
A good example is the financials sector, which came under pressure in the first quarter as the yield curve flattened out. "Everyone assumed that rates would rise here on out," Loewengart said.
The best sectors for the second quarter
- Financials: 53 percent
- Information tech: 47 percent
- Health care: 45 percent
- Energy: 35 percent
- Industrials: 35 percent
But millionaire investors surveyed by E-Trade believe financials offer the most potential in the second quarter. Fifty-three percent of millionaires said the financial sector was the best opportunity among U.S. sectors, and that was up from 29 percent who cited financials in the first quarter. "They still see this sector as ripe for opportunity," Loewengart said, because rates will rise whether the pace laid out by the Fed is still as active as it has suggested. "We're still at a juncture in time of historical low rate levels, and they will increase if the economy stays strong," he said.
Valuation in the sector remains more attractive than in other U.S. sectors as well. A change in direction from the Fed or a less-effective Trump administration than expected could influence financial stock performance, but Loewengart said this is another area where millionaires see past the short-term headlines and recognize no single effort of the Trump administration will have as great a power over the market as broader macroeconomic forces. Industrials also saw a big spike in interest, from 19 percent of millionaires saying the sector offered the most potential in the first quarter to 35 percent saying it was their top sector choice in the April survey.
Millionaires continue to believe financials, followed by industrials, are two of the three sectors that will benefit the most from the Trump administration's policies and Congress (the other is energy).
"These more experienced investors see through the noise. I see it in the survey and see it day to day in business," Loewengart said.
Eighty-three percent of millionaire investors think the economy is healthy enough for the Fed to raise rates this quarter, up from 76 percent last quarter and a belief over which millionaires show much more conviction than the broader investing public, where only 62 percent agreed with this view.
The intentions of the Fed and commitment to more normal monetary policy, and Trump wanting to move forward with pro-growth policies, together will cause people to focus more on economically sensitive sectors. The industrials jump comes back to economically sensitive exposure and dovetails with a boost in infrastructure spending.
Though millionaires are not entirely immune to sectors undergoing headline threats: Health care had been the No. 1 sector choice of millionaire investors in the first quarter and saw a big decline in interest this time around: Forty-five percent of millionaires said it offered the most potential this quarter, down from 56 percent in the first quarter. Though at 45 percent, health care is still the third most popular sector among millionaires.
The least popular sectors continue to be the rate-sensitive plays, demonstrating the power of the Fed: Telecom, consumer staples and utilities were at the bottom of the millionaire list of sector interest, with consumer staples seeing the biggest decline, down from 27 percent in the first quarter to 14 percent in the current one.