This market is atypical, but people with a million dollars in stocks are fine with it

Jerome Powell, chairman of the U.S. Federal Reserve, said that downside risks to the economy remain with trade wars softening business investment and weak inflation.

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People at the very top are a little confused by the current economy and top in the market.

Warren Buffett has said that no economic textbook explains the "strange" economic situation we are in today. Federal Reserve Chairman Jerome Powell recently testified that the decades-old relationship between unemployment and inflation "has gone away, " so the old rules about raising rates to limit inflation don't apply today.

Ray Dalio of the world's biggest hedge fund, Bridgewater Associates, says that a coming "paradigm shift" in investing means it is time to reduce risk by investing in safe-haven assets, including gold, as central banks get more aggressive with policies that devalue currencies.

Maybe stranger still: Even as it is more difficult today to make sense of the current relationship between central banks, the economy and the market, that is not proving to be a concern for investors when it comes to keeping their money in stocks, according to the latest survey of market millionaires conducted by E-Trade Financial. The survey was conducted in early July among 205 investors with $1 million or more of investable assets and is provided exclusively to CNBC.

No rate cut needed, but investors will take it

Among individual investors with at least $1 million in a self-directed brokerage account, 74% rate the U.S. economy as either an A or B, and only a third (35%) think the current state of the U.S. economy merits a rate cut, and that was down from 44% who thought a cut was required last quarter — 35% said no rate cut is necessary; another 30% said they had no conviction on what the next move should be.

By all expectations, a rate cut is coming when the Fed meets over the last two days of July, and these investors say the decision will keep the major market averages, including the S&P 500, moving up. Fifty-six percent of investors with at least $1 million in their brokerage account told E-Trade that the market will rise through the end of the third quarter. Millionaire investors who think the market will drop did increase, but only from 15% to 19%. Another 25% of those surveyed think the market will end the quarter close to flat.

"Looking back over the more recent history of monetary policy, this is atypical, that we would have a cut at this juncture, but the world has been changing, certainly over last decade," said Mike Loewengart, chief investment officer at E-Trade Capital. "Millionaires overall are still generally positive and committed to their investment plan."

Expectations for gains have moderated. The percentage of millionaires who expect stocks to rise through the end of this quarter declined from 62% to 56%. "Investors have range-bound expectations," Loewengart said, "but they are generally skewed to upside." He added, "Even with investors questioning whether the economy really needs an interest-rate cut, one behavior quirk we see with investors is separating the economy from the market."

In the second-quarter survey, nearly half of millionaires said that Federal Reserve policy (31%) or a flattening yield curve (18%) was the biggest risk to their portfolio. That fell to less than one-third of investors surveyed this quarter, with 20% worried about the Fed and 12% worried about the yield curve.

"They got the message," Loewengart said. "If there is no rate cut, look out below."

Investors are not heavily favoring any sectors within the U.S. market. Technology (51%) and health care (51%) tied for the stock sector that millionaires think will generate the highest returns this quarter.

Trade tensions (56%) is the most-cited cause for concern by a wide margin. Nevertheless, these investors are slightly more interested in international equities, which moved higher on the list of potential investment opportunities. The percentage of investors who said international equities did not appeal to them at all declined from 41% to 32% in the current quarter, while those who said overseas stocks were attractive rose from 32% to 37%.

Loewengart said valuation concerns are coming into play. "They have been more attractive than U.S. stocks for some time now." Valuation is still a key contributor to the attitude among millionaires about investing. "They recognize the risks and the impact the trade war is having for developed and emerging economies, but this is consistent with the opportunity set available to investors out there."

Overall, a majority of investors with $1 million or more in stocks (52%) are going to let things ride and do not plan to make any major changes to their current allocations. The percentage of those indicating they would move out of positions and into cash declined from 13% to 10%. Those saying they will make changes to their current allocations ticked up above one-quarter of the millionaire audience, from 24% to 27%.

Note on survey: The E-Trade quarterly survey was conducted by Research Now from July 1 to July 11, 2019, among an online U.S. sample of 908 self-directed active investors who manage at least $10,000 in an online brokerage account. The millionaire data set is comprised of 205 investors with $1 million or more of investable assets and is provided exclusively to CNBC.

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