Economic Fears Chip Away at Investors’ BullishnessEconomicFearsChipAwayatInvestors’Bullishness

Investors’ angst over interest rates, a potential trade war, and a mixed outlook for global economic growth has chipped away at the bullishness that powered stock markets last year. A survey from the American Association of Individual Investors found that 47.3% of its members expect stock prices to fall over the next six months, up from 29.4% in mid-January and reflecting the most bearish sentiment since November 2023. The results captured an elevated sense of uncertainty pervading financial markets. Policy changes are underway in the US, the Federal Reserve appears poised to deliver fewer rate cuts than previously hoped, and major economies in Europe have struggled to jumpstart growth. The threat of new tariffs, including the Trump administration’s proposal last week for reciprocal levies on a wide range of imports, presents a wildcard in the investment outlook. When the AAII polled individual investors, 57.4% said they believe tariffs will slow growth and increase prices, while another 20.5% anticipate only a temporary impact.

Coming off a strong year for stocks, elevated valuations are likely contributing to investors’ growing pessimism as well. The S&P 500 gained 23% in 2024, buoyed by a US economy that outperformed its peers and a tech sector that benefited from enthusiasm around AI. Looking ahead, investors could find attractive opportunities not just in the US, but beyond America’s borders. Jennison Associates explores a dynamic opportunity set in emerging markets, which represent a largely underappreciated asset class after experiencing a challenging decade.