Expectations of near-term US equity market returns remain largely pessimistic, with overall sentiment hitting the lowest in the survey history.
US equity investors remain risk averse in August due to market headwinds from the increasingly gloomy global macroeconomic outlook, geopolitical tensions with China and the Russia-Ukraine war, as well as high inflation and the subsequent trajectory of policy tightening by the Federal Reserve. This has emerged in the latest Risk Appetite Index from S&P Global’s Investment Manager Index (IMI) monthly survey, which is based on data from around 100 institutional investors operating funds with assets under management of around $845bn, which rose from -16% in July to -13% in August, it’s second highest since February.
The degree of negative sentiment eased from July, however, as the prospect of stronger shareholder returns are encouraging some investors to take more risks.
Healthcare remains the most-favored sector for the second month running, while consumer discretionary stocks are the least popular for the sixth successive month.
That said, the latest reading is still indicative of a market mired in risk aversion. As such, expectations of near-term US equity market returns remain largely pessimistic, with overall sentiment hitting the lowest in the survey history.
All factors bar shareholder returns are seen as acting as a drag on the market for the third month in a row. The global macroeconomic environment, geopolitics, and central bank policy are viewed as the biggest drags on the US equity market, reflecting a weaker economic outlook and high inflation.
More positively, the drags on the market coming from the domestic economy and equity fundamentals were the least severe since May and June, respectively. That leaves only shareholder returns as providing any sort of support to the market, though even here sentiment was the second-weakest since July 2021.
Major markets are still down double-digit percentages year to date despite a rebound in July. Only 15% of US equity investors have raised their earnings expectations for Q3 2022, according to the latest IMI poll, a slight improvement to the 12% recorded in May.
