But as the Fed raises interest rates—six times this year, with another expected to be announced this week—several economists and investors argue that the central bank’s aggressive attempt to lower inflation is pushing the economy into a recession. 

As a result of those “recession worries,” the appetite for risk among investors has plunged to its lowest level since September, a survey by S&P found. The S&P Global’s Investment Manager Index is a monthly survey based on data from roughly 300 institutional investors who collectively represent $3.5 trillion in funds. 

“The mood among U.S. equity investors has soured in December, with the tentative return of risk appetite seen in October evaporating further,” said Chris Williamson, executive director at S&P Global Market Intelligence and the report’s author. Global economic environment and central banks potentially raising interest rates more, he added, are seen as the “biggest drags” on the market.

In a sign of the pessimism, 82% of the survey’s respondents said they consider a recession to be the “most likely” scenario in the coming months. Of those, 12% expect a “deep recession” versus just 4% in July. 

Recession worries have also led to 49% of investors anticipating a “weakening” of the dollar next year after a particularly strong run this year. Only 13% of investors expect the dollar to increase in value.

However, there was a major shift in investors’ perception of stock valuations from last month to this month, the survey found. High valuations are now seen as a “drag” on the market as the economic outlook becomes darker. 

“This in part reflects some improvement in equity prices since early November, but also signals some reevaluation of market pricing in the face of the perceived headwinds to equities,” the report said. 

In terms of sector performance, health care stocks are gaining investor confidence while real estate remains as the “least preferred sector” because of the direct impact higher interest rates have on it. 

“Views remain bearish on average towards tech, communications, industrial, and basic material stocks, attributed mainly to recession fears,” the report said. 

But investor sentiment has become increasingly positive toward consumer staples, which are essential products that are unlikely to be cut from a person’s budget regardless of the economic situation—like food and beverages, household items, and hygiene products. 

“One bright spot was that sentiment seems to have started to improve for consumer-facing stocks, linked to signs that inflation has peaked and a shallower Fed rate hike path trajectory, though this in turn largely reflects the perceived heightened recession risks,” Williamson said.