Investors believe it’s time to get very conservative in the stock market, CNBC survey shows

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Wall Street investors believe it’s time to take some risk off the table as concerns continue to pile up this month, according to a new CNBC Delivering Alpha survey. 

We polled about 400 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood on the markets for the rest of 2021 and next year. The survey was conducted this week.

More than three quarters of the respondents said now is a time to be very conservative in the stock market when asked what kind of market risk they are willing to accept for themselves and their clients.

A confluence of uncertainties have emerged in the market, threatening to derail stocks’ record-setting recovery rally. On Monday, the S&P 500 suffered its worst sell-off since May as investors grew concerned about China’s troubling real estate sector and the Federal Reserve’s likely rollback of its massive stimulus. Meanwhile, fears of slowing economic growth amid high inflation — so-called stagflation — have also crept back nearly two years since the pandemic began.

While holding a more cautious view on the market right now, investors still believe stocks could grind higher over the next 12 months. About half of the survey respondents said the S&P 500 will rise more than 5% in the next 12 months. Forty-four percent said the equity benchmark will be fairly flat, while only 5% said it will fall over the next year.

After this week’s pullback, the S&P 500 is about 4.2% off its record high from early September. The benchmark is still up about 16% this year following eight consecutive months of gains. Many believe the market is experiencing seasonal weakness in a historically choppy month of September.

“There seems to be a change in market sentiment over the past couple of weeks that favors the bears,” said Brian Price, head of investment management at Commonwealth Financial Network. “After a relatively quiet summer where the path of least resistance for equities was steadily higher it seems as though market participants are looking to fade this year’s rally.”

Some notable strategists are sticking to their bullish calls on the market. Widely followed Tom Lee of Fundstrat believes the stock market’s Monday rout is a buying opportunity for investors. JPMorgan’s quant guru Marko Kolanovic also called the sell-off overdone.

However, Morgan Stanley’s Mike Wilson, one of the biggest bears on Wall Street, sees a “destructive” scenario where the S&P 500 suffers a 20% correction as some economic indicators have started to deteriorate.

For investors focusing on yield, the best strategy right now is private credit, according to the survey result. Only 2% of the respondents believes Treasurys could offer attractive income.

Government bonds are quickly becoming one of the most hated asset classes as their safe-haven appeal dampened amid the economic recovery. Meanwhile, the Fed, which has been buying $120 billion in Treasurys and mortgage-backed securities through its quantitative-easing program, may soon embark on its taper process.

One-time bond king Bill Gross recently called Treasurys trash, saying the 10-year yield will trade around 2% for the next 12 months. Leon Cooperman last week said bonds are “totally overpriced,” calling a big decline in prices.