This content is from: Corner Office

Investors Think the Economy Will Get Worse Before It Gets Better

Public health concerns resurge in the latest II Fear Index.

New coronavirus cases are mounting in parts of the U.S. — and institutional investors are growing anxious, according to this week’s II Fear Index.

Asked whether governments should prioritize public health or the economy, 55 percent voted for public health — an 8 percent increase from last week, when a majority of respondents cited the economy. Concern for public health had waned in the last few weeks, but that trend appears to be reversing as businesses reopen and infections multiply.

Still, most asset managers and allocators polled this week believed they’ve already seen the worst of the public health crisis, with 55 percent wagering that Covid-19 infections have already peaked. The opposite was true for other impacts of the pandemic. Sixty percent indicated that social repercussions would worsen before they improve. Sixty-one percent of respondents predicted the worst of the economic crisis is yet to come. 

These findings contrast with last week, when investors revealed newfound optimism about the economic prospects of their countries. Thirty percent of respondents said they felt more pessimistic this week about their economy’s trajectory, while 26 percent felt more optimistic.

[II Deep Dive: This Exclusive Dataset Shows Why Investor Optimism Is Surging]

Investors largely believed that national governments should provide additional economic stimulus and relief, with the majority (55 percent) indicating that measures should go directly to households. Twenty-six percent said stimulus and help should be given to business enterprises, while 18 percent suggested routing through the financial system. (Those backing relief could pick multiple delivery avenues.) Twenty-three percent thought governments should forego economic relief packages for the time being.

As for the actions already being taken by the U.S. Federal Reserve and other central banks, respondents remained supportive, with 32 percent indicating that they felt more optimistic about their monetary policymakers this week compared to last week. The Fed’s recent decision to hold interest rates steady through 2022 positively impacted all asset classes, respondents felt, especially developed market equities. Even corporate bonds, which investors expected to benefit the least from low interest rates, did not provoke too much worry, with just 25 percent predicting that bond prices would be impacted negatively.

Still, investors had some concerns. Eighty-four percent said that keeping interest rates near zero would increase the risk of bubbles in asset prices, while 62 percent thought there would be higher risk of inflation.

Results from the II Fear Index poll continue below. To contribute to the index, please register here.