US equity investors remain deeply risk averse in April amid concerns over the impact of the Russia-Ukraine war and the worsening economic growth and inflation outlooks, with the soaring cost of living seen as driving the Fed into more aggressive policy tightening.

Investor appetite has increasingly been driven away from consumer discretionary and industrial stocks in particular.

The Risk Appetite Index from S&P Global’s Investment Manager Index (IMI) monthly survey, which is based on data from around 100 institutional investors operating funds with assets under management of around $845 billion, rose from -32 percent in March to -29 percent in April but remains in deeply negative territory to signal the second highest degree of risk aversion recorded since the survey began in October 2020.

Investors have now been risk-averse on average for four successive months, but the cautious mood has become far more widespread following Russia’s invasion of Ukraine. Expectations of near-term US equity market returns likewise remain strongly pessimistic, picking up only slightly from March to register the third-lowest degree of sentiment in the history of the survey.

What’s driving US equity market returns over the next 30 days?

Monetary policy, geopolitics and the global macroeconomic environment are now viewed as the biggest drags on the US equity market, reflecting the exacerbation of downside economic growth risks and – more importantly from the Fed’s perspective – upside inflation risks following the invasion of Ukraine. Support to the market from equity fundamentals and the US macro environment have also faltered to near neutral. That leaves only shareholder returns as supportive of the market to any significant degree, and even this perceived support has fallen to the lowest since last August.

Chris Williamson, executive director at S&P Global Market Intelligence and report author, said: “The IMI survey highlights the varied and growing headwinds to the US equity market, which have left investors in a heavily risk-averse mood in April.

“Of key concern is the extent to which Russia’s invasion of Ukraine has exacerbated inflation risks, with resultant tighter Fed policy seen as an increasing brake on earnings while simultaneously lowering economic growth projections. At the same time there’s no perceived support to the market from fiscal policy, and even shareholder returns and equity fundamentals are viewed as more limited in their scope to drive market returns.”