Investor confidence in US equity market fades in June

US investors grew less risk tolerant in June amid expectations of near-term losses in the equity market, according to the latest results from S&P Global's Investment Manager Index survey.

Risk appetite among US equity investors dropped to 11% in June from a multiyear high of 28% in May. Despite the increased cautiousness, investors remained more tolerant than not of risks for a fifth consecutive month.

"Positive market sentiment has been sustained by better-than-anticipated earnings, which have kept shareholder returns and equity fundamentals front of mind in terms of perceived market drivers," 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 June 3–6. If you would like to receive the full report on a regular basis or participate as a panel member, please email economics@spglobal.com.

Return outlook darkens

After a brief surge to positive returns expectations in May, investors adopted a more pessimistic stance in June. The survey's Equity Returns Index fell to negative 13% from 10%, reflecting a return to negative expectations that investors have struggled to shed over the past two years.

Investors expected shareholder returns and equity fundamentals to remain the most significant drivers of returns over the next month, though equity fundamentals also registered the greatest drop in sentiment, to 23% in June from 39% in May.

The global macroeconomic environment has overtaken the US economy as a marginally stronger driver of equity returns. A downward revision to first-quarter US GDP and subdued growth expectations for the second quarter had contributed to investors' waning confidence in the US economy, Williamson said.

"It certainly looks like the pace of expansion so far in 2024 has cooled from the strong rates seen late last year, which can in turn be linked to consumers reining in spending and borrowing amid higher interest rates and depleted savings," Williamson said.

Energy, financials fall out of favor

While nine of 11 economic sectors are viewed favorably by investors in June, the overall less optimistic outlook on stocks led to marked declines for the financials, energy and consumer discretionary sectors. Energy and financials each fell by 17 percentage points month over month, dropping from the two top-ranked spots to the middle of the list.

"Sentiment toward financials has slipped amid concerns over demand being subdued by higher-for-longer interest rates, as well as broader concerns regarding the pace of economic growth in the coming months," Williamson said.

Investors' views of utilities and real estate improved in June, with the former hitting an all-time high favorability rating at 20%. Real estate remained in negative territory despite investor sentiment jumping 18 percentage points.