The ranks of bearish investment managers have ballooned to their highest level in more than 20 years, even as Wall Street expects the Federal Reserve to announce this week another rate cut aimed at firing up the economy and the stock market. The percentage of bulls has plummeted by more than 50% in the past year, from 56% to 27%, while 31% are bearish, the largest proportion since the mid-1990s, per the fall 2019 Big Money Poll conducted by Barron's. The remaining 42% have a neutral outlook.

"We see more and more of the highest-quality names trading at valuations that suggest there may be as much risk as opportunity,” as Charles Crane, principal at Douglass Winthrop Advisors in New York, has $3 billion in assets under management (AUM), told Barron's. “We can’t ignore the fact that the S&P 500 is up 20%-plus, year to date. It is unlikely that it will repeat that kind of trajectory in 2020,” he added.

Key Takeaways

  • Leading investment managers are the most bearish in over 20 years.
  • Individual investors also are turning more pessimistic.
  • More individual than professional investors find stocks overvalued.
  • A recession is unlikely before the second half of 2020, per both polls.
  • Respondents to both polls are dissatisfied with President Tump.
  • However, they find him preferable to any Democratic candidate.

Significance for Investors

In the latest Big Money Poll, a little more than 25% of respondents indicated that U.S. stocks are overvalued now, down slightly from the figure one year ago. However, respondents predict only modest stock declines through mid-2020, the average forecasts being a drop 2% for the S&P 500 and a 5% retreat for the Nasdaq Composite.

The growth rate in real U.S. GDP will be at least 2% over the next 12 months, according to 61%. The next U.S. recession will arrive in the second half of 2020, per 25%, and in 2021 or later per 61%.

Meanwhile, more than 1,000 individual investors also polled by Barron's voice similar views. Only 29% are bullish, down from 40% in April. However, 42% believe that U.S. stocks are overvalued, significantly more than in the Big Money Poll. Meanwhile, most do not expect the U.S. to be in recession before the second half on 2020, at the earliest.

On presidential politics, both polls are in broad agreement. While large percentages of respondents to both surveys are dissatisfied with President Trump's performance, they prefer him to any of the Democratic candidates and expect him to be re-elected. Nearly two-thirds of Big Money Poll respondents find former Vice President Joe Biden to be the most moderate and acceptable Democratic nominee, but a similar percentage nonetheless expects Senator Elizabeth Warren to win the nomination, and an overwhelming 99% anticipate that the market would react negatively, should she be elected.

Looking Ahead

 “Sometimes, I feel like we’re at the mercy of tweets and breaking news from Washington, and switching gears on trade and foreign policy,” observes Michael Frazier, president and CEO of Bedell Frazier Investment Counselling, which oversees $500 million in assets, in remarks to Barron's. “It’s a tough environment to navigate right now. The risk/reward [ratio] isn’t all that compelling.”

Frazier adds: “There is a lot of angst. Politics are really playing a much bigger role than in past market cycles. There’s such a stark division between political parties that it is weighing on the psychology of where the country is and where the economy and the market are.”