US equity investors' risk appetite rises as outlook on most sectors falls

US equity investors signaled greater risk tolerance in February, while their outlook on most industry sectors worsened, according to the latest results from S&P Global's Investment Manager Index survey.

Equity investors' risk appetite rebounded in February, rising to 13%, according to the survey's Risk Appetite Index. This was just under the two-year high of 16% in December 2023 and up from negative 4% in January.

Bolstered by recent financial results, investor sentiment on US earnings also rose to a two-year high of 7% — the first positive reading over that period.

"Investor concerns over a reduced stimulus to equities from fewer central bank rate cuts have been trumped by expectations of improving corporate performance on the back of brighter economic prospects," said Chris Williamson, executive director at S&P Global Market Intelligence.

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 Feb. 5–8. If you would like to receive the full report on a regular basis or participate as a panel member, please email economics@spglobal.com.

Central bank policy out of favor

Investors' tempered expectations led Federal Reserve policy to drop back into negative territory in February. In January, an optimistic outlook on 2024 rate cuts boosted central bank policy to the top of the list.

Strength in the labor market and encouraging fourth-quarter 2023 GDP data contributed to investors' improved outlook on the US macroeconomic environment in February. Shareholder returns and equity fundamentals were the only other factors viewed as contributing positively to market returns.

Investors remained the most concerned about valuations and the political environment amid gains for the S&P 500 and the upcoming US presidential election.

Bearish views on returns

Expectations for US equity market performance among investors improved over January yet remained in contraction territory, at negative 11%.

Nearly half of surveyed investors expected the market to remain flat in the near term, though North American investors held notably more bearish views than investors in the rest of the world.

Sector outlook

Investors viewed most sectors less favorably in February compared to the previous month, with real estate registering the most significant decline to negative 49% from negative 8%. Utilities and financials fell over 30% amid negative investor sentiment surrounding Fed policy.

"As equity markets test new highs, concerns over valuations have limited investor expectations of further near-term market gains, and the possibility of rates staying higher for longer has dented appetite for real estate and financials," Williamson said.

The technology sector saw the biggest swing in sentiment, rising to the most positive rating for the sector in over two years after investor confidence briefly waned in January.