Corbin Advisors Research Sees Spike in Bearish Investor Sentiment despite Recent Market Rally; Investors Weigh Potential Earnings Recession
- Slowing global growth and China contagion concerns top drivers of more downbeat sentiment; notably, Asia-based investors are 2x to 3x more concerned about China than U.S. and European counterparts
- 68% of surveyed investors characterize their sentiment as neutral to bearish, up 20%, with a significant uptick in categorically bearish
- Nearly 40% of investors report executive tone is more negative compared to just 11% last quarter
- 45% expect third quarter consensus misses versus just 30% last quarter
- Channel checks on key performance metrics reveal worsening outlooks for the remainder of 2015; bright spots limited to Technology, Financials and Consumer Discretionary
HARTFORD, Conn. – October 8, 2015 – Corbin Advisors, a leading investor research and investor relations (IR) advisory firm, released today its quarterly research report Inside The Buy-side®, a global survey which captures trends in institutional investor sentiment heading into the earnings season. The poll, based on responses from 66 institutional investors whose firms manage over $4 trillion in total assets, remained open from September 16 - 29, 2015.
The third quarter witnessed a staggering amount of volatility in the global equity markets. Fears of slowing growth in China triggered a domino effect with losses rippling through the financial markets, driving major indices into correction territory for the first time in four years. Not surprising, survey findings reflect a significant spike in bearish sentiment among investment professionals and corporate managers. Surveyed “bears” rose from 9% in June to 24% in September while “bulls” receded 15% to just 3%.
Investors expect key performance indicators to stay the same or deteriorate in the third quarter, specifically organic growth, free cash flow and earnings growth. Corbin’s ongoing research indicates a direct correlation between investor sentiment and management tone, which has also moderated. While nearly 32% of contributors maintain that executives with whom they interact remain cautiously optimistic, 39% report that tone has become more negative. However, these sentiment changes conflict with some investors’ views that the environment should improve. As Ken Kaczmarek, Chief Economic Officer at Peloton Wealth Strategists, commented, “I expect 3Q results to come in better than expected; oil prices are leveling off and the dollar’s strength is easing compared to last year.”
“There have been massive outflows from certain sectors, namely energy, materials and industrials, which accelerated once again into quarter end,” commented Rebecca Corbin, Founder and CEO of Corbin Advisors. “However the market appears to be at another inflection point – is current pessimism outpacing weakening fundamentals or are we on the brink of a more severe earnings recession? Investors appear poised for the latter, as further downside risk was seemingly priced in as we closed September. Focus this earnings season will be on management tone and outlooks as investors assess the prospects for 2016, which are likely to be muted,” added Corbin.
Over several consecutive quarters, survey data indicates investor expectations heading into the earning season are consistently worse than reality. That said, the majority of participants, or 54%, expect further downward revisions to 2015 guidance while 45% expect worse than consensus results for the third quarter. Brian Hennessey, Portfolio Manager at Alpine Woods Capital Investors notes, “The bias will be for companies to guide lower. Companies always want to beat earnings in the 4Q so they will guide down.”
Of note, a majority, or 57%, still anticipate the first Fed rate hike to occur in the fourth quarter of 2015, while 32% of those surveyed now predict the initial increase will come sometime in 2016.
Finally, for the sixth consecutive quarter, participants rank reinvestment as their preferred method for deploying excess free cash followed now by M&A given the pullback in equity valuations.
Since 2006, Corbin Advisors has tracked investor sentiment on a quarterly basis. Inside The Buy-side® and other research on real-time investor sentiment, IR best practices and case studies are available at CorbinAdvisors.com.