In last week’s podcast we observed that the investors we’d met with in London in late September had sounded cautious and concerned on the US equity market, in contrast to the more constructive (admittedly, sometimes begrudging) tone we’d heard in our mid-September NYC meetings. Last week after returning from the UK, we spent most of our working hours meeting with US equity investors in several different cities in the Midwest and East Coast. We confess that we were surprised that the tone of these early-October US conversations was closer to that of our late-September London meetings than our mid-September NYC meetings.
Frustrated is a good way to describe the tone we heard in some of last week’s conversations, particularly those with Small Cap core and growth-focused investors. Difficulties outperforming their benchmarks due to the low-quality leadership and strong move in momentum that’s been underway in the Small Cap universe was the biggest source of this frustration, with some Small Cap PMs also noting that the concentration problem Large Cap Growth managers have been dealing with for so long had made its way into Small Cap.
Looking beyond our Small Cap meetings, wary is another good word to describe the tone we heard from US equity investors last week. Like our UK clients, some of our US clients expressed apprehension about the stretched nature of current valuations and jitters over the status of the AI/mega cap growth trade. In some of our US meetings, investors seemed more concerned about the economic growth backdrop and demand than inflation impacts from tariffs.
Several surprised us by expressing muted views on the future trajectory of capex (specifically non-AI- related capex), which we think may have been influenced by the continued weakness that was seen in the ISM manufacturing survey, particularly the downtick in new orders since that indicator has tended to be a good leading indicator of actual capex spend.
Some of our US clients also mused whether the typical tailwinds stocks experience from rate cuts had already been pulled forward into stock market pricing.
The subdued tone we’ve heard in London and the US in late September and early October, along with the more constructive tone from mid-September, is all part of the messy mosaic of investor sentiment that’s in place. We see this in our data sets as well. Net bulls in the weekly AAII survey (a gauge of retail investor sentiment) moved up again last week, into slightly positive territory and nearly back to average on the weekly data point, but still slightly net negative on the four-week average.
Meanwhile, bitcoin (viewed by some as a way to gauge sentiment among retail day traders) broke out of its slump and re-approached its August high-water mark.
Elsewhere, new data from the Conference Board Consumer Confidence survey out last week suggests that despite the stall in the recovery we’ve seen in consumer confidence generally, optimism on the stock market remains quite high and in line with most past peaks aside from the most recent one. Unfortunately, we do not have a fresh read this week on our favorite quantitative way to gauge institutional investor sentiment – the weekly CFTC data on US equity futures positioning, leaving us more dependent on what we’re hearing in meetings to gauge where institutions are.
