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Few Investors See the S&P 500’s Next Chapter Being a Happy One

Turns out it isn’t just billionaire investors who are worried about U.S. equities after their big surge since March.

In a client survey by Evercore ISI earlier this week, fewer than a quarter of respondents said they expect the next 10% move in stocks will be higher. That’s more bearish than they were when asked at both the S&P 500’s peak in February and its trough in March.

The results may be a window into psychology at a time investors have seemed more apt to sell into declines, including this week, though alternatively they could be a contrarian buy signal. The biggest risk, according to the survey, is of another viral outbreak just as countries around the world work to reopen economies. Investors fear that would worsen a global economic recession and strand an equity rally that’s pushed prices to the highest level relative to earnings since the dot-com era.

“Negative commentary from investing legends this week along with concerns over a second wave didn’t help sentiment,” Dennis DeBusschere, head of portfolio strategy at Evercore ISI, wrote in a note. “Investors view a 2nd wave as by far the biggest risk for the market followed by valuation.”

This has been tumultuous year as stocks fell into the fastest bear market in March and then staged one of the strongest recoveries in decades. Now, with the S&P 500 stuck in a 220-point trading range over the past month, traders are on guard for the next big move. Warnings grew louder this week as famous hedge fund managers investors including Stan Druckenmiller and David Tepper called stocks vastly overvalued.

Read more: Wall Street Heavyweights Are Sounding Alarm About Stocks (1)

Participants in the Evercore ISI’s survey broadly picked autumn as the most likely time for a second wave of coronavirus cases to hit. The responses, however, differ by region. Those from the southern U.S. were most likely to think the concern was overstated, while the Midwest and non-U.S. respondents were most likely to view the risk as understated. ISI’s survey reflects responses from 560 investing and corporate clients on May 11-13.

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