US investors regain slight risk appetite for 1st time since July

US investors reported a renewed risk appetite for the first time since July, along with an optimistic outlook for near-term equity market performance not seen since January.

The Risk Appetite Index in the S&P Global Investment Manager Index report rose to 4% in October from negative 26% in September, according to monthly US equity survey results released Oct. 14. The index entered slightly into positive territory after two months of negative readings that indicated a risk-averse sentiment. The index measures net risk appetite among surveyed investors, with those reporting a high tolerance or aversion counting with double weight.

Surveyed investors reported risk aversion in August and September, even as equity markets overcame international trade uncertainties and extended a streak of monthly gains that began in May. The return to bullish sentiment in October has been bolstered by corporate earnings growth and expectations for US Federal Reserve interest rate cuts. Market optimism is unlikely to be affected by the ongoing US government shutdown.

"There has been a lot of optimism built into markets despite some of the concerns around elevated valuations or geopolitics, so markets have been able to look through the government shutdown due to some of the tailwinds that have driven markets since April, such as accelerated rate cut expectations," Jennifer Appel, senior investment director at NEPC, said in an interview.

Although the shutdown could become one of the longest for the government, markets are focused less on its duration and more on its economic impact, which should be minimal, Appel said.

"When thinking about economic growth, inflation or monetary policy, it's hard to say that we're going to see the 2025 shutdown derailing some of those tenets of the current environment," Appel said. "We would expect this to be a pretty short-lived event for the market even if the shutdown itself is lasting longer."

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 Oct. 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.

Investors bullish on near-term equity gains

Alongside an increase in risk appetite, investors anticipate equity gains over the next month, with optimism largely attributed to central bank policy.

The Investment Manager Index survey's Equity Returns Index rose to 4% in October from a negative 49% in September, the lowest score since the survey began in 2020. The score reflects the percentage of respondents expecting an improvement in equity returns over the 30 days following the end of the survey, minus the percentage expecting net equity losses.

The index has registered a positive reading only twice this year, with the previous positive value in January.

Survey respondents indicated that central bank policy was most likely to positively influence near-term market returns, as reflected by a positive index reading of 54%. Equity fundamentals and shareholder returns were also expected to support market performance, though to a lesser degree.

Investors remained concerned about elevated equity valuations and the political environment.

"The central bank is doing almost all of the hard work in terms of driving improved investor sentiment, as concerns over the political environment at home in the US and stretched valuations continue to dampen the risk-on mood compared to the buoyancy seen at the start of the year," said Chris Williamson, executive director at S&P Global Market Intelligence and author of the Investment Manager Index report, in comments released with the survey results.

Sentiment improved the most for the global macroeconomic environment, with the index reading in October increasing 23 percentage points month over month to negative 3%, still indicating slight pessimism.

Investors move into IT, materials

Surveyed investors expressed net bullish sentiment in seven of 11 sectors, with the strongest preference for the financials and IT sectors.

The IT sector saw the greatest increase in optimism. The Investment Manager Index survey yielded a 26% reading for the sector, up 25 percentage points from September.

Index readings also rose considerably for basic materials, up 19 percentage points, and communication services, up 15 percentage points. The increases shifted sentiment for both sectors to positive in October, from negative in September.

The consumer discretionary sector's index value climbed 16 percentage points. However, it remained in bearish territory, with a negative 24% reading, the lowest among all sectors.

Index values fell month over month and remained negative for the real estate, energy and consumer staples sectors.