Investors see a high probability of a mild recession
As the American stocks venture into record territories, investors are getting anxious
The new year has practically taken off from it where it left 2019. Despite numerous geopolitical, economic & other risks, the U.S equities have stayed resilient so far. Something strange has, however, manifested itself in the distribution of investing dollars right now. Money is flocking to both the technology & utilities sector.
While the former has been driving the longest bull run, the latter is usually associated with the choice of investment for tougher times. The combination of investment is unusual to stay the least — it seems like the investors are optimistic and worried at the same time.
On the surface of it, the U.S market indices are shattering records, but just below the surface investors are starting to get edgy with the overstretched bull market. The results are evident from the recently conducted survey of investors done by the Boston Consulting Group (chart above).
However, the interesting part is that the same survey conducted a year ago revealed almost the same results, despite 2018 ending in a steep correction while 2019 concluded with almost 30% gain in the S&P 500. The key points of the current survey were as follows:
- Expectations for average annual total returns over the next three years are just 5.6% — much lower than the historical average of 10.1% since 1926.
- 73% of the investors think that markets are overvalued — the highest level in the past five years.
- The timing of recession results showed a mixed picture with 71% thinking the recession saying it would start within the next two years. 36% envisioned a recession within one year, which was lower than the 2018 number of 38%.
- And finally, 41% of the investors think that the recession would be a shorter one (less than one year), one third (33%) are expecting a longer than a year’s recession.
While these survey predictions can be taken with a pinch of salt as the market has its own mind and you can never really accurately predict what’s going to happen next, it certainly shows you the investors remain on guard for an impending downturn.