In the latest reading of institutional investors' stock market outlook, the S&P Global Investment Manager Index continues to reflect a high level of risk aversion. But equity fund managers are warming up to a few sectors.
Geopolitical tensions from the Russia-Ukraine war and, more recently, China-Taiwan weighed on fund managers in the early-August survey. Apprehension about central banks' increasingly hawkish stance also kept professional investors in guarded mode. A dimming macroeconomic outlook was another risk factor. However certain sectors continue to be favored.
Near-Term Stock Market Outlook At All-Time Low
Institutional investors' outlook for the stock market's near term performance hit an all-time low in the S&P Global survey.
The separate Risk Appetite Index actually rose from -16% in July to -13% in August, largely due to strong corporate earnings. This may spur some managers to take some risk. However, even this factor had the second-weakest sentiment reading since July 2021.
Among the stock market sectors, health care was the most favored, followed by energy. Health care is a defensive play in tough markets. Energy has become increasingly important as Russia holds back on gas pipelines that feed Europe's energy needs.
Consumer discretionary continued to be out of favor for the sixth month in a row, followed by real estate.
Sentiment has improved slightly month on month for 10 out of the 11 sectors. However, a continuing negative outlook for eight of those stock market sectors should tell investors about the larger, gloomy view of near-term performance.
Fund Managers Seek Dividends
Investors are looking for dividends as they continue to shift into value, says Ian VanderHorn, dividend research lead at S&P Global Market Intelligence.
"With capital appreciation hard to come by, yield-seeking investors are finding some relief in low-debt, cash-flowing businesses that have shareholder-focused capital plans," he noted.
This is resulting in a shift from growth to dividend stocks. Cash dividends rose as a key factor in investing decisions from 69% in May to 77% in August.
Companies are also buying back their shares in a risky market. Buyback programs are normally not common during downturns since companies normally try to reduce spending. The current trend may be led by prominent players in energy, technology and banking.
