US investor risk aversion returns, expectations of losses deepen in August

Risk aversion returned for US equity investors in August.

After briefly regaining risk appetite in July, S&P Global Market Intelligence's latest Investment Manager Index survey showed a return to risk avoidance with a negative 20% reading. The index measures net risk appetite among surveyed investors, with those reporting a high tolerance or aversion counting with double weight.

The latest reading is the lowest since April, when the US announcement of global tariffs rocked markets. Sentiment briefly recovered through the summer months and hit positive territory in July before dipping again in August.

"Investor sentiment has visibly weakened at the start of August digesting the slew of tariff developments since July, including the implementation of higher tariffs for major US trading partners and the announcement of new tariffs on [semiconductors] towards the tail-end of the survey period," said Jingyi Pan, associate director for Market Intelligence, in a news release accompanying the survey results. "This has clearly shifted views on market drivers, with a souring of perceptions towards both the US and global macroeconomic environments, while the potential tariff-related impact on inflation has also invited investors to wipe away their previously held optimism towards central bank policy in supporting US equity performance."

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. 4–7. If you would like to receive the full report on a regular basis or participate as a panel member, please email economics@spglobal.com.

Near-term equity outlook worsens

The survey's Equity Returns Index dipped to negative 35% in August from negative 5% in July, the lowest reading since April.

Valuations again were the biggest drag on equities, albeit to a slightly lesser degree than July.

"Valuations are really high, and we are in a two-month period that historically has not been good for the market: August and September," Steve Quirk, chief brokerage officer for Robinhood, told Market Intelligence. "If you look at where the market has been over the last couple of weeks, it made a low and a high, and we're now stuck in between those two. Now you can make two arguments out of that. One argument is the market, which is very healthy, is building a base for the next rally. The other argument is the market is sort of taking a look and wondering if this perch is a little too high."

The political environment was viewed by surveyed investors as the next-largest drag on equities in the near term. Investors view a higher degree of political uncertainty as a downside for the market, according to the survey.

Central bank policy, meanwhile, shifted to neutral in August from a driver in returns a month earlier. This reflects continued concerns over the paths of inflation and benchmark interest rates in the US, according to the survey.

Shareholder returns and equity fundamentals were viewed as the most supportive of returns in August, albeit to a lesser degree than in July.

Sector outlook largely dims

Net bearish sentiment emerged across six of 11 market sectors in August, a dimmer outlook than July's reading of bullishness across seven sectors.

Financials, communication services and IT sectors remained the most favored by investors polled in the survey. Still, net bullishness more than halved for financials and IT from July's survey results. This, in part, reflected the announcement of US tariffs on semiconductor imports.

The consumer discretionary sector, meanwhile, extended a run as the most out of favor among investors as sentiment against those stocks worsened. Surveyed investors also flipped to bearish views against healthcare and basic materials stocks after reporting net bullishness on both sectors in July.