The Big Story
Investors are fearful. If we needed more evidence of that, we got it in the form of a survey of investors that the Boston Consulting Group released this week. What's interesting is that the same survey conducted at the end of 2018 revealed nearly the exact same results. One year later, nearly one-third of the investors surveyed have a bearish, or very bearish outlook for the stock market looking three years out. Just over one third are very bullish. Remember that 2018 ended with a steep stock market correction, and 2019 ended with the S&P 500 rising nearly 30% for the year.
Survey respondents’ expectations for average annual total returns over the next three years are just 5.6%. That's markedly lower than the 10.1% annual average total return since 1926. Total return is price increases plus dividends.
What is driving these low expectations among investors? High valuation multiples remain the number-one source of concern, according to the survey. Among all respondents, 73% believe that markets are overvalued, an uptick from 67% in the 2018 survey. But the perceived downside appears to be limited: on average, investors viewed markets as being overvalued by 10%, an improvement from the average of 15% in the previous survey. That's even more peculiar given the hearty gains in the market over 2019, but investors are peculiar.
One final note, 71% of respondents anticipate a recession within the next two years, compared with 74% in the 2018 survey. And although 46% of those expect the anticipated recession to last more than one year, 74% expect it to be mild (less than a 2% contraction in real GDP) even if it is prolonged.