US equity investors cautiously optimistic – S&P Global

Risk sentiment among U.S. equity investors has pulled back from its 2½-year high in May, according to a measure of optimism from S&P Global, but it still maintains a strong positive stance, albeit slightly lower than the previous month.

Despite this moderation, the outlook for the year’s end remains optimistic. Moreover, there is a subdued risk appetite among equity investors in June.

S&P Global’s Investment Manager Index (IMI) survey highlighted that tech now leads sector preferences, displacing energy, with utilities and healthcare also receiving positive sentiment. However, consumer discretionary and real estate sectors are experiencing decreased favourability among investors.

“Investor favour remains broad-based, with 9 of the 11 sectors tracked by the IMI receiving net-positive sentiment in June, unchanged in May, which was in turn
the highest proportion since late 2021. Tech has returned to the top of the rankings, displacing energy, which has seen a marked slide in sentiment. Utilities also receive record positive sentiment and healthcare remains highly favoured.” the survey read.

“In contrast, consumer discretionary has taken over the least-favored spot from real estate, with both sectors notably out of favor among investors in June. However, financials are also seeing a marked deterioration in investor sentiment, with sentiment also slipping toward industrials and basic materials, and remaining subdued for consumer staples.”

Investors still prioritise shareholder returns and equity fundamentals as key market drivers, although the US economy’s influence has diminished. Central bank policies, equity valuations, and geopolitical factors weigh on sentiment.

Regarding the US economy, investors anticipate modest growth over the next year, with a decreasing expectation of rate cuts by the Federal Reserve in 2024. This shift reflects a re-evaluation of interest rate outlooks, with more investors expecting rates to remain steady throughout the year.

The US economy … is now seen as a diminished market driver, with interest rates also seen as a drag on the market, albeit countered by a revival in expectations of stronger global economic growth amid signs of renewed economic strength in Europe and Asia.” said Chris Williamson, Executive Director at S&P Global Market Intelligence.