USA (Washington Insider Magazine)— Investors in equities have demonstrated a significantly heightened tolerance for risk during May, buoyed by positive outlooks on yields and various industrial sectors. This surge in risk appetite, reaching its zenith since November 2021, is evidenced by the latest findings from S&P Global’s Investment Manager Index survey.
Sharp Increase in US Equity Investors’ Risk Appetite
In May, the risk appetite among US equity investors surged to 28%, marking a stark contrast to the mere 5% recorded in April. This substantial leap represents the highest reading observed since November 2021. A notable departure from the sentiment recorded a year prior, which stood at a negative 34%.
Factors Driving Positive Sentiment
According to Revistaeyn, Chris Williamson, CEO of S&P Global Market Intelligence, attributes this surge in positive sentiment to various factors. Notably, the most recent earnings season has extended optimism by demonstrating continued company health in the face of higher-for-longer interest rate environments. There’s also a consensus that the US and global economies are resilient and will not experience a recession.
Optimistic Expectations for Equity Market Returns
For the first time in 2024, US investors shared positive expectations for equities market returns, with the equity return index rising to 10% in May from -26% in April. This surge is supported by a declining share of investors anticipating market devaluation, which has dropped to a six-month low of 23% from 39% the previous month.
Drivers of Equity Returns
Investors have singled out shareholder returns and equity fundamentals as the principal drivers of equity returns in May. The latest earnings season has fortified investor confidence in the US market’s performance. Moreover, there’s a prevailing belief among investors in the potential for rate cuts later in the year, which could further sustain earnings growth.
Sectoral Optimism
The optimistic outlook among equity investors has permeated most sectors, with nine out of eleven sectors viewed positively in May. Notably, sentiments towards communications services and utilities have turned positive. Despite a 26% decline driven by lower crude oil prices, energy remains perceived favorably. Furthermore, technology witnessed the most significant monthly boost following a drop in April.
Subdued Changes in Macro Sentiment
While the US macroeconomic environment experienced a decline in sentiment by 22%, most other factors saw single-digit changes compared to April. This suggests a relative stability in investor perceptions across various economic indicators.
By reflecting on these shifts in investor sentiment and behavior, analysts aim to discern potential implications for future market movements and economic trends.