US equity investors have grown increasingly risk-averse amid concerns that stocks are too expensive, according to the latest results from S&P Global's Investment Manager Index survey. The majority of sectors have fallen out of favor with investors, even as the S&P 500 is up nearly 25% from its October 2022 low.
Market fears worsened from July to August as the survey's Risk Appetite Index fell to negative 24% from negative 10% in July, showing that, on net, investors were more averse to risk.
The index has not been positive since October 2022, although it was neutral, at 0%, in November. While the index was positive for all of 2021, it has been negative in 18 of the past 20 months.
In August, 40% of survey respondents said they were risk averse, up from 32% in July, while 9% said they were very risk averse, flat from July.
Valuations key concern
Investors appear to be most concerned about stock valuations versus historical levels, meaning they believe stocks have become too expensive. Worries about the political environment and the global macroeconomic environment as key drags on equities also increased from July, while concerns about central bank policy remained above average.
"Compared to July when central bank policy and valuations were the two key concerns, we are seeing more issues weighing substantially on risk sentiment for US equity investors, thus leading to the reduction in risk appetite," said Jingyi Pan, an economics associate director at S&P Global Market Intelligence.
Shareholder returns were the only supportive factor for stocks in the survey, as they have been since December 2022, an indication that the ongoing rally in US equities "lacks conviction" from investment managers, Pan said.
Bracing for losses
Near-term expectations of returns in the US stock market remain deeply negative, falling to the second lowest in the survey's history.
Just 12% of investors surveyed in August expected the US equity market to gain value over the coming months, the lowest in the survey's history.
Sector focus
Investors continue to favor healthcare and energy stocks. The real estate industry remains deeply out of favor, although there was some "easing of bearish sentiment" around the sector in August, Pan said
"Rising interest rates and fear of softening economic conditions, identified as persistent concerns in August, remain the Achilles heels for the real estate sector to see any meaningful buying interests," Pan said.
S&P Global's Investment Manager Index survey includes monthly responses from a panel of just under 300 participants employed by firms that collectively represent approximately $3.500 trillion in assets under management. Data was collected Aug. 1-6.
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