Investors have become rosier in their outlook – but should they be?

Investor confidence picked up between February and March. Resurgent fears of a global recession may wipe that out. 

The first quarter of 2019 has seen investors steadily regain confidence.

Following the heavy selling at the end of 2018, markets soon rebounded in January. Gains on the US market made the month of January 2019 the best for 30 years.

The party across the pond has continued, with the first quarter of 2019 now on track to be the best performing first three months of a year since 1998.

This rebound in investor sentiment is echoed by the latest Lloyds Bank Investor Sentiment index. According to the survey, investor sentiment increased by 5% between February and March, the largest positive shift since August 2016.

Leading the uptick in sentiment was equities. Investor confidence in US shares saw the strongest growth, increasing by 12.6%.

The survey also picked up a slight uptick in sentiment towards Eurozone shares. Between February and March, investor attitude to equites listed on the continent increased by 4.3%.

Further evidence of improving investor sentiment can be seen in gold losing its lustre. The precious metal is typically a favourite of investors to hold in times of uncertainty and turbulent equity markets. The latest survey showed confidence in gold declining by -2.2%.

However, while the uptick was clear, it should be noted that investors sentiment was still way off highs seen in 2018. Meanwhile, investor confidence towards the eurozone is significantly lower than last year.

At the same time, much of the positive sentiment measured in the survey is likely to have seen significant declines in recent days.

Most of March has produced solid gains for markets around the world, with hopes riding high due to the seeming prospect of a US/China trade deal and Federal Reserve perceived to be back on dovish mode.

That, however, took a turn on Friday 22 March. Triggered by poorer than expected German production data and weak sentiment measures in the US, fears of a global recession surfaced. That led investors to flee equity markets while safe haven bonds rallied.

Most concerning to investors, the flight to safety in bonds saw US 10-year treasury yields go lower than 3-month treasury yields, leading to the inversion of the so-called yield curve. This has historically been a precursor to recessions. 

This new turn in sentiment will not have been picked up by the Lloyds Bank Investor Sentiment Index, which was conducted at the end of February.

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment