Institutional money managers are more confident about the U.S. economy, but they still see the European debt crisis as the largest threat to equity markets, according to a quarterly survey by Northern Trust of managers in its Northern Trust Global Advisors multimanager platform.
In the fourth-quarter survey, 74% of the managers believe U.S. economic growth, as measured by GDP, will remain stable or accelerate over the next six months, 10% more than the previous quarter; 74% also say the S&P 500 is undervalued.
Also, 81% say job growth will remain stable or accelerate through midyear, up nine percentage points from the third quarter.
Fifty-two percent expect corporate earnings to increase this quarter, compared to just 34% last quarter.
“The fact that the U.S. economy is on sound footing is being viewed as a positive from managers … corporate balance sheets are solid” relative to the financial markets previously, said Chris Vella, chief investment officer of Northern Trust Global Advisors, in a telephone interview. “There's been more confidence around economic indicators, which has helped with more positive views.”
Fifty-six percent of respondents think one or more countries could leave the European Union because of the debt crisis. Mr. Vella said the risk of a slowdown in China's growth also ranked high among manager's concerns.
Managers were most bullish on U.S. large-cap and small-cap equities and emerging markets as 61% said emerging markets equities were undervalued, up 15 percentage points from the third-quarter survey. The most bullish sectors were technology, energy and consumer staples.
Managers were bearish on conservative fixed-income instruments such as Treasuries and investment-grade bonds, as well as financials, utilities and materials sectors.
Northern Trust surveyed 105 managers in mid-December.