Investors are showing a weak level of confidence in U.S. stocks even after this month’s rally: most believe the market has not yet bottomed out due to concerns about corporate earnings, Bloomberg reports.

About 70% of the agency’s 383 respondents hold that view. At the same time, 35% said that the market will fall to the lows in the second half of this year. Less than a quarter of respondents believe that the bottom has already been reached.

The results of the survey indicate that investors remain in deep shock after last year’s collapse of shares. At the same time, they expect corporate profits to worsen due to an expected slowdown in global economic growth.

Almost half of respondents said that the key factor for stocks this week will be quarterly reports of a number of companies, rather than the decision of the Federal Reserve or the speech of its chairman Jerome Powell. The Fed is expected to raise the benchmark rate by just a quarter percentage point on Feb. 1, its smallest increase in nearly a year.

“There’s a lot of negativity and uncertainty among investors right now – and for good reason,” said Michael Sheldon, chief investment officer at RDM Financial Group. – It’s a tough time because financial conditions have deteriorated in recent months along with rising stock prices, and that’s not what the Fed wants as it tries to slow the economy to tame inflation.”

The Standard & Poor’s 500 stock index is up 6 percent since the start of 2023. That’s the best January performance since 2019, as signs of slowing inflation and economic growth have fueled expectations that the Fed is nearing the end of its tightening cycle. But the most aggressive rate hikes in decades, combined with rising prices and wages, have created a challenging environment for corporations to build profits.

About 90% of respondents expect inflation to continue to weaken this year but remain above the Fed’s 2% target.

“Stock market bulls” are in a solid minority, with only 18% of survey participants saying they will increase their investments in the S&P 500 next month. More than half say they will keep their positions flat, while about 27% intend to reduce them.

Analysts expect U.S. economic activity to slow in the second and third quarters.

“This could be the most anticipated recession the U.S. has ever seen if it does happen, with a number of economic indicators already pointing to its likelihood,” Sheldon said. – The stock market has probably bottomed out, but I wouldn’t be surprised to see further weakness in the spring as investors begin to price in weaker economic data and lower earnings.”

Bond market traders expect the economic picture to be so disappointing that the Fed will have to cut rates later this year. And based on futures quotes, it will be raised to about 5% per year by midyear.

“History tells us that nine months after the last rate hike, the Fed tends to cut interest rates,” said CFRA chief investment strategist Sam Stovall.

That contrasts with statements by Fed officials that the central bank will raise rates above 5% rather than cut them this year.