The extent of investor confusion about the outlook for financial markets is clear from the latest Big Money poll by US investment platform Barron’s: a quarter of participants are bullish, a quarter are bearish and half do not know.
Barron’s conducts its widely-read survey of professional investors, in which 112 asset managers participated this time, every spring. One third of respondents say they are bullish on the prospects for equities in the year ahead, almost a quarter are bearish and the vast majority - about 45 percent - are neutral.
Yet the trend is downwards, and the number of pessimists seeing downward risks is growing. On average, they expect the US indices S&P, Dow Jones and Nasdaq to fall by 5 to 8 percent in the coming year. The optimists, on the other hand, see the bright side: they expect the S&P 500 to rise by 14 percent by the end of June next year.
A majority - 60 percent - does believe that equity markets are still the best place to wait for market developments. The same percentage also expects US equities to yield 6 to 10 percent annually over the next ten years.
Sean Sebold of Sebold Capital Management that interest rates will rise, but so will corporate profits. Profit margins are still very high and employment is strong. Growth is slowing, but no more than that, he believes.
Value stocks
John Moffet of Hourglass Capital believes that the time of low inflation and low interest rates is over, which favours an outperformance of value stocks over growth stocks. He is supported in this opinion by 73 percent of the respondents.
Concerns about growth stocks are caused by rising interest rates reducing the present value of future cash flows. Some 17 percent of respondents cite the consumer goods and technology sectors as the least attractive for the coming year, while 22 percent point to the utilities sector.
A favourite sector is energy, partly due to rising oil prices . Energy companies gain more profit and free cash flow and thus higher dividends and shareholder returns. More than 30 percent of those surveyed identified this sector as the most attractive, followed by tech (16 percent), healthcare (15 percent) and financials (12 percent).
Back to the USA
Unlike in 2020, asset managers are not happy about the Federal Reserve’s approach this time. With inflation rising and economic growth slowing, the Fed is lagging behind. At the same time, interest rates are rising, which is driving bond yields higher and bond prices lower.
Two thirds of Barron’s poll participants expect to increase their positions in US equity markets over the next 12 months. At the same time, they say they will reduce their exposure to other markets. They say adieu to China, but they also tend to say goodbye to markets in Europe and Japan.