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Welcome to RBC’s Markets in Motion podcast, recorded December 22nd, 2021. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.
This week in the podcast, we’re running through the results of our December US equity investor survey, conducted December 16th through 21st. Three big things you need to know:
First, roughly half are optimistic on stock market performance over the next 6-12 months, supported by constructive views on the economy and cash deployment, but weighed down by concerns about valuations, policy and margins. Second, in terms of hot topics, monetary policy and inflation top the list of issues keeping investors up at night. Third, in terms of positioning, High Quality, US, and Large Caps, were the most popular choices for outperformance over the next 6-12 months, as the popularity of Value, Cyclicals, Financials and Energy faded.
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Now, let’s dig in.
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- Takeaway #1, on the overall outlook…roughly half are optimistic on the performance of the stock market over the next 6-12 months, with performance outlooks supported by constructive views on the economy and cash deployment but weighed down by concerns about valuations, policy, and margins.
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- Those describing themselves as bullish or very bullish on performance inched up to 51% from 47% last quarter.
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- On both the economy and cash deployment, optimists outweigh the pessimists. 57% are constructive on the economy – up a little vs. September –
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- While 53% are optimistic on cash deployment – down a little.
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- In terms of methods of cash deployment, optimism on buybacks remained highest, but optimism picked up the most on capex – which is interesting to me since a number of investors have asked me recently if we will see a prolonged capex cycle because of supply chains.
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- On valuation, policy and margins, views skewed negative or neutral. On valuation, 46% are in the negative camp, but that’s actually an improvement.
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- On policy, 38% said they see it as “somewhat negative” or “very negative” – even more of an improvement as this was at 52% last quarter.
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- Those were both constructive shifts. We did see a negative change in margin expectations, where 57% expect flattening, up from 39% in September. I’ve also been getting a lot of questions about the 2022 margin outlook in recent meetings.
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- Takeaway #2, in terms of hot topics, monetary policy and inflation top the list of issues keeping investors up at night.
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- On the Fed, expectations for the first hike have been pulled forward – 76% say 1H22, up from 28% in September, but 2Q22 is still the most popular choice at 54%, leaving the door open for a negative stock market surprise if lift off happens in March as some, including our own economist, are suggesting might be the case.
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- Further on the Fed, we explored how investors are thinking about policy error - 40% say the greater risk to the economy and stocks is that the Fed is removing accommodation/tightening too quickly. 29% said the greater risk is that the Fed won’t remove accommodation/tighten enough. The bias here echoes what I’ve been hearing in recent meetings, as a number of investors I’ve spoken with have questioned why the Fed is getting more aggressive when data has been soft on things like retail sales and omicron is posing another threat near-term. Note that just 26% said the Fed is on the right path.
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- On inflation, 71% say it will moderate in 2022, with no real consensus on which quarter.
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- In terms of other issues… on supply chains, the middle quarters of 2022 continue to be in focus for the timing of improvement, similar to our September poll though the skew here was a little more intense.
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- And on the Omicron outlook, the optimists continue to outweigh the pessimists by 46% to 24% – this is basically the same thing we saw when we asked about this in a short survey we did the Monday after Thanksgiving. This all suggests to us that much of the recent angst in the market has been driven by shifting Fed views rather than COVID.
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- Wrapping up with takeaway #3, in terms of positioning, High Quality, US, and Large Caps, were the most popular choices for outperformance over the next 6-12 months.
- These are all generally viewed as safer parts of the US equity market.
- Value, Financials, Cyclicals, and Energy were also near the top of the list, but were a clear notch below.
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- In terms of trend, Defensives (generally), the US, and specific defensive sectors including Consumer Staples, Health Care, and Utilities saw some of the biggest increases in optimism vs. our September survey, while Energy, Cyclicals, Financials, and Value saw some of the biggest declines in optimism vs. our September survey.
- Throughout the survey, we saw a lot of question where the consensus was weak on some questions – topping out right at or below 50% -- and evidence of deep division on others.
- The positioning biases tell me this is all taking a toll on the investor psyche, contributing to a defensive undertone as the new year comes into views.
That’s all for now. Thanks for listening. And be sure to check out our sister podcast, RBC’s Industries In Motion, for conversations about sectors from our team of RBC research analysts.