Risk appetite among US stock market investors slipped for a third straight month after volatility roiled global markets at the beginning of August, adding to existing concerns about macroeconomic and political conditions and driving sentiment to a one-year low, according to the latest results from S&P Global's Investment Manager Index survey.

The survey's Risk Appetite Index fell to -10% in August. This was down from -5% in July, creating further separation from the two-and-a-half-year high of 28% in May.

Concerns regarding the potential impact on equity returns from macroeconomics and politics centered on the upcoming US presidential election and conflicts in the Middle East and Ukraine. These factors could continue to tip sentiment downward through the end of the year, according to Mohammad Hassan, equities dividend forecasting director at S&P Global Market Intelligence.

"Investor sentiment has turned markedly bearish, yet it is worth noting that, beyond the bulls and the bears, roughly 63% of respondents remain neutral on future earnings growth expectations," Hassan said. "With markets on edge due to geopolitical tensions and the looming US election, the fourth quarter will be a tough test for shareholder returns."

Surveyed investors largely expected US equities to lose value over the 30 days following the Aug. 9 end of the survey period.

Equity fundamentals, interest rate cuts within investor radar

Equity fundamentals were seen as likely denting near-term returns for the first time since January after investor confidence weakened following the second-quarter earnings season. Meanwhile, surveyed investors asserted that equity valuations continue to have the second-largest negative impact on returns.

Skepticism on economic growth prospects has increased investor expectations for more aggressive interest rate cuts by central banks in the coming months. This has boosted investor sentiment that central bank policy could present the most upside for market returns, with a positive index reading of 35%. This is up from 5% in July.

With lower interest rates anticipated by the end of the year, positive investor sentiment toward dividend stocks is at its highest level in two years as shareholder returns are viewed as a principal driver of market returns.

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. 6–9. If you would like to receive the full report on a regular basis or participate as a panel member, please email economics@spglobal.com.

The US Federal Reserve may begin cutting rates in September while the European Central Bank most recently cut its benchmark interest rate in June.

Interest in defensive sectors persists

Investors continued to favor positions in defensive stocks in August, with sentiment leaning most into the healthcare, utilities and consumer staples market sectors.

Sentiment toward utilities was further supported by lower interest rate expectations, a prospect that also favorably shifted investor focus toward the real estate sector. Meanwhile, recession fears increased investor aversion to consumer discretionary, basic materials, industrials and energy stocks.

Overall, investors were supportive of only five of the market's 11 sectors in August. This further represents the intensifying "risk-off mood" among US equity investors, according to Chris Williamson, executive director at S&P Global Market Intelligence.

"The latest Investment Manager Index survey has seen a big change, with investors becoming increasingly concerned about economic growth and earnings potential while simultaneously ratcheting up their expected support to the market from lower interest rates," Williamson said. "The latter has helped drive investor interest in real estate and dividend-focused utility stocks, but the broader concern over economic growth has dampened demand for many other sectors, most notably tech and consumer discretionary."