For years, the historic run higher for U.S. stocks has been characterized as a “hated” rally, one that has consistently vexed investors with rising prices in the face of widespread skepticism.
If anything, repeated record highs in 2017 have only made money managers more dour.
Big investors are heading into 2018 with the most bearish perspective on stocks since the great financial crisis, according to Boston Consulting Group’s annual investor survey.
Fully 46% of investors were pessimistic about equity markets for the next year, up from 32% a year ago and 19% in 2015; more than one-third were bearish about stocks over three years, more than double last year.
As global equity benchmarks have rallied, more investors see the market as richly valued. Fully 68% of respondents said the equity market is “overvalued,” more than double the 29% of respondents who thought as much last year.
Nearly four-fifths of self-described bears cited “overvaluation” as the reason for their market pessimism, the survey found.
As bears perk up, expected long-term returns are falling. The average expectation for total equity return, including dividends, over three years was 5.5%, the same as last year and tied for the lowest return expectation since the survey was initiated in 2009. Of course, diminished expectations haven’t slowed down the galloping pace of stock gains yet.
Investor concerns stretch into the wider economy. Nearly 80% of respondents said that they expect an economic recession within three years and 53% said that they expect a recession within two years.
The most frequently cited reason for the next recession was “rising interest rate levels,” a factor cited by 45% of bears. Another 40% cited the “U.S. political climate.”
The survey, conducted over two weeks starting in late October, queried 250 investors with a collective $500 billion in assets.
