With financial markets gyrating lately — interest rates are climbing and stocks are down pretty sharply this month after soaring in the first half of 2023 — we got an interesting snapshot this week of how U.S. equity managers see things right now.

S&P Global’s investment manager index survey finds that “U.S. equity investors have grown increasingly risk-averse amid concerns that stocks are too expensive.” It reports that most sectors have fallen out of favor with investors, even though the S&P 500 is up nearly 25% from its October low.

A bull market raged through the first half of this year, as tech giants that had downsized as the pandemic subsided rushed headlong into the artificial intelligence boom, said Quincy Krosby at LPL Financial.

“The largest portion of the surge in the market came from Big Tech,” she said. “And that is always worrisome because it pushed up valuations markedly.”

Those high valuations are now spooking investment managers. There are multiple forces pressuring stocks, noted Sam Stovall at CFRA Research.

“Investors sort of feel like a kung fu master who has to parry all of these spears being thrown from a variety of directions. Because, you know, it’s not just the Fed, but it is also some geopolitical issues,” he said.

Like China’s weakness and the war in Ukraine, for example. But right now, the Federal Reserve is playing the biggest role.

There’s increasing anticipation that the Fed will raise interest rates at least one more time to fight inflation. Those higher rates are pushing investors away from stocks and into bonds, per Gary Schlossberg at the Wells Fargo Investment Institute.

“When interest rates go up, bond prices go down,” he said. “They look increasingly attractive because those prices are becoming cheaper and cheaper relative to stocks.”

Ironically, the biggest risk going forward is that the economy will be too strong, Stovall said.

“We’re getting good economic news, which could translate to bad Fed and market activities,” he said. “If the Fed continues to raise rates, does that increase the likelihood of a recession in 2024?”

If that happens, it’ll certainly be bad for stocks — at least for a while.