Experienced investors entered the fourth quarter in a downbeat mood, according to E-Trade Financial’s StreetWise quarterly tracking study, released Friday.

Bearish sentiment rose to 50%, up 11 percentage points from the third quarter. Forty-seven percent of investors said U.S. trade tensions were the biggest risk to their portfolios. Thirty-four percent cited recession as the chief risk, and 24% gridlock in Washington.

Worries about recession jumped six points since the last quarter, according to the study. Fifty-two percent of participants said the U.S. economy had reached its peak, up 16 points since the beginning of the year. Investors who said they would give the economy an ‘A’ or ‘B’ grade plunged 11 points quarter over quarter to 58%.

“Investors are battling a myriad of headwinds — between pockets of economic weakness, ongoing trade disputes, slowing global growth, a low interest rate environment and, now, impeachment inquiries in Washington,” Mike Loewengart, vice president of investment strategy at E-Trade, said in a statement.

“While these issues can cloud the outlook for investors, it’s times like these that a diversified portfolio can shine. Investors with holdings across fixed income and equities, various asset classes and market caps can better weather periods of volatility.”

The online survey was conducted in early October among a U.S. sample of 902 self-directed active investors who manage at least $10,000 in an online brokerage account.

Sector Opportunities

The survey asked investors their views on sector opportunities for the fourth quarter of 2019.

The tech sector has experienced volatility amid ongoing trade negotiations. Still, 47% of investors expressed interest in this traditionally overvalued sector, suggesting they may be hunting for bargains, according to E-Trade.

Interest in health care dropped five points in the fourth quarter, but remained the choice of 43% of investors. E-Trade noted that the sector is traditionally considered defensive, as it tends to be less affected by market ebbs and flows.

The energy sector’s appeal for 41% of investors was bolstered when supply disruptions caused a bounce in crude oil prices.

Here’s how other sectors lined up according to investor interest:

  • Utilities – 32%
  • Financials – 31%
  • Consumer staples – 30%
  • Communication services – 21%
  • Consumer discretionary – 19%
  • Industrials – 18%
  • Materials – 17%

All sectors remained within a point or two of their favorability rating in the 2018 fourth quarter, with three exceptions. Utilities and consumer staples each surged by nine points, while financials plunged nine points.

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