Advisor’s guide to managing client pessimism in bull market

The Federal Reserve is set to meet this week to decide whether or not to lower interest rates. While markets have grown confident about the prospect of a rate cut this month, bearish sentiment among individual investors is on the rise.

Nearly half of all investors said that they’re bearish about the market over the next six months, according to the American Association of Individual Investors’ latest weekly sentiment survey. That sentiment has spread in recent weeks, reaching its highest point in over four months.

Overall consumer sentiment has followed a similar pattern. Preliminary results from the September release of the Michigan Consumer Sentiment Index — a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan — saw consumer sentiment sink to its lowest point since May.

Meanwhile, stocks have continued to rally, with the S&P 500 marking record highs nearly every day in September. Experts say it’s no coincidence that bearish sentiment has risen alongside a market rally.

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Duncan Lamont, head of strategic research at Schroders, wrote in a recent analysis that while the thought of investing at all-time highs can feel uncomfortable, history shows it’s the right move.

The analysis, which looked at inflation-adjusted returns for U.S. large-cap stocks from 1926 to 2024, found that returns have actually been higher for investors who bought into the market at all-time highs. Twelve-month returns averaged 10.4% after a record, compared with 8.8% when stocks weren’t at a peak. And over two- and three-year periods, returns were largely the same regardless of whether the market was at a high.

“It is normal to feel nervous about investing when the stock market is at an all-time high, but history suggests that giving in to that feeling would have been very damaging for your wealth,” Lamont wrote.

Trying to sell at all-time highs and reenter the market later can have similarly devastating effects, Lamont found.

A $100 investment in the U.S. stock market in January 1926 would have grown to $103,294 by the end of 2024 after adjusting for inflation, an average annual return of 7.3%. By contrast, a strategy that moved to cash whenever the market hit an all-time high, and returned when it didn’t, would have grown to just $9,922 over the same period.

For financial advisors who understand the value of time in the market, the real challenge isn’t investing itself — it’s managing clients’ resistance and pessimism when bearish sentiment runs high.

Meeting pessimistic clients where they’re at

How advisors handle bearish clients can vary depending on the situation, but before trying to change a client’s mindset, the crucial first step is to validate how they’re feeling, according to Hardik Patel, founder of Trusted Path Wealth Management in Santa Rosa, California.

After validation comes education.

“You can show a detailed retirement analysis that estimates future cash flows and returns from a less risky portfolio, and anticipated results from it,” Patel said. “Shift their focus to long-term goals and use stress tests to illustrate how their plan performs under different scenarios.”

Jason Craine, a financial advisor at Savvy Advisors in Wichita, Kansas, said that when working with bearish clients, he has found that having detailed conversations about what normal volatility looks like for their portfolio can help dissuade them from trying to time the market.

“My preference is tactical allocation shifts within a longer-term strategic framework, so clients stay invested while still having flexibility to adapt as conditions or personal needs evolve,” Craine said. “This approach greatly reduces the urge to make shifts based on sentiment — not by minimizing client concerns, but by showing that those broader risks and uncertainties have already been factored into the strategy.”

Buying peace of mind without losing out on market growth

Advisors note that clients often soften their bearish views after learning about risk, volatility and historical returns. But conversation alone isn’t always enough. For particularly anxious clients, creating stronger short-term buffers can help ease fears without forcing large reductions in equity exposure.

Mike Casey, president of American Executive Advisors in Washington, D.C., said that he suggests over-saving buffers for clients when emotions are running high, which can help avoid a sudden urge to sell portions of a portfolio.

Patel said he takes a similar approach, building safety measures through cash buffers, short-term bonds and near-term bucketing.

Jared Gagne, assistant vice president at Boston-based Claro Advisors, said that a bucketing strategy can be an especially powerful tool when working with overly pessimistic clients.

“Near-term spending sits in safe assets, while long-term money is invested in equities,” Gagne said. “That balance acknowledges both the risk of volatility and the need for growth, helping clients stay invested without fear.”