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A new survey from IHS Markit reveals that US equity investors'
risk appetite has deteriorated to the worst level recorded over the
past year as concerns mount over the ongoing pandemic and investors
perceive falling equity market support from monetary and fiscal
policy.
Risk appetite sinks to lowest in 12 months
Expectations of market returns turn negative
Pandemic impact seen stretching into 2022, curbing macro
environment at same time as policy support perceived to be
waning
Healthcare stocks remain in favor amid COVID concerns, though
financials see strongest interest
Consumer discretionary and industrials see sentiment at lowest
for a year
Risk appetite wanes
The darkening picture of market sentiment is signaled by IHS
Markit's new Investment
Manager Index™ (IMI™) monthly survey, based on data from a
panel of 100 institutional investors employed by firms which
collectively represent approximately $845bn assets under
management. The latest monthly data were collected between 7th and
13th September.
Data have been collected since October 2020, a period over which
the US equity market has risen strongly to record highs following
the presidential election and initial stimulus and vaccine-fueled
economic recovery from the pandemic.
However, recent months have seen the survey indicate a cooling
of investor sentiment from peaks recorded earlier this year, with
strong risk appetite seen in prior months almost evaporating in
September, accompanied by an increasingly bearish near-term outlook
for equities.
The survey's Risk Appetite Index fell from +14% in August to +1%
in September, barely above the zero level that separates risk
tolerance from risk aversion and registering the lowest degree of
risk appetite yet recorded by the survey.
At the same time, the survey's Expected Returns Index fell from
zero in August to -12% in September, meaning more investors see
returns falling in the next 30 days than anticipate a rise. The
latest reading is the second lowest since last October, with
pessimism exceeded only by that seen back in May, when the survey
saw concerns flare up over inflation and central bank policy, as
well as rising taxation. These concerns continued to dominate in
September, exacerbated by worries about the lingering impact of
COVID-19.
Sentiment hit by COVID-19 and policy
concerns
Central bank policy has seen the largest pull back in sentiment
as a market driver over the past year, albeit remaining positive on
balance in September amid some easing of investor concerns over
inflation since the summer. The proportion of investors viewing the
Fed as being forced into an early taper or making a larger policy
error has fallen since June.
Investor perceptions of how fiscal policy can help drive the
market have also fallen to the lowest since the survey began.
Initial optimism earlier this year centered on the new
administration's fiscal stimulus plans has given way to worries
regarding the funding of that stimulus and the potential for
overheating.
The political climate is now seen as representing an increasing
drag on returns, albeit much less so that a year ago.
Concerns have also risen over the lingering impact of COVID-19.
The spread of the Delta variant means some 66% of survey
respondents now expect COVID-19 to still be having a high or
moderate impact on the US economy at the turn of the year, up
sharply from 25% back in June.
Most visibly, the positive effect of global and US macroeconomic
drivers is perceived to have diminished compared to elevated levels
seen earlier in the year, due to the Delta wave. As recently as
July, the US macro environment was seen as the single-largest
driver of US equity returns, having displaced central bank and
fiscal policy from the top spots early in the year, but in
September shareholder returns and equity fundamentals are now seen
as the biggest positive drivers of the market.
Valuations remain the biggest drag, however, serving as a
reminder of the elevated market.
Sector sentiment shifts
Similarly, September has seen a further shift in investor
sentiment towards different sectors amid the Delta wave. Healthcare
remains close to the top of favored sectors, beaten only by
financials in terms of having the best outlook for the next 30
days.
COVID-19 worries have kept consumer staples in favor but have
knocked sentiment towards consumer discretionary and industrials to
the lowest yet recorded by the survey, the latter likely hit by
additional concerns over supply chain disruptions.
Sentiment towards IT/tech, real estate, and communications
services have also fallen compared to August, though only utilities
and real estate are seeing overall net bearish sentiment.
For a copy of the full report and accompanying data, please
contact economics@ihsmarkit.com.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
