Money managers remain generally positive about the U.S. economy, although their optimism has tempered from last quarter, said Northern Trust's first-quarter investment manager survey released Wednesday.
Forty-four percent of managers surveyed expect U.S. GDP growth to accelerate over the next six months, down 11 percentage points from the fourth quarter of 2016. Another 50% expect U.S. GDP growth to remain stable and 6% expect it to decelerate, vs. 38% and 8% respectively, last quarter. Some percentages don't total 100% due to rounding.
Additionally, 46% of managers expect U.S. corporate earnings will increase over the next three months, while 46% expect earnings to remain the same and 7% expect earnings to decrease, compared to 62%, 32% and 6%, respectively, from the fourth quarter.
At the same, however, 51% of managers believe U.S. equities are overvalued, the highest reading since the survey began in the third quarter of 2008, and up from 39% last quarter. Another 38% said U.S. equities are appropriately valued and 11% said they are undervalued, compared to 42% and 19%, respectively, last quarter.
In light of the more than 10% gain in equity markets following the November election of Donald Trump and a Republican-controlled Congress, Northern Trust asked managers what could derail the equity rally. The majority said the inability to pass key legislation (59%), followed by a geopolitical incident (13%), trade policy concerns (9%) and an inflation increase above consensus and equity market valuations (9%).
Other findings from the first-quarter survey include:
- Only 7% of managers expect job growth to accelerate over the next six months, down from 17% last quarter.
- 63% believe inflation will rise over the next six months, down from 78% in the fourth quarter.
- A record 79% of managers expect U.S. interest rates to increase in the next three months.
- 37% of managers now believe that Japanese equities are undervalued, up from 36% last quarter; 54% believe European equities are undervalued, up from 53%; and 48% believe emerging markets equities are undervalued, down from 61%.
- Managers are the most bullish on emerging markets equities, followed by international developed equities.
- Trade policy remains the top risk to global equity markets, according to managers, followed by geopolitical risk, up from third place last quarter, and a rise in interest rates, down from second place last quarter.
- 17% of managers reported having above-normal allocations to cash in the first quarter, down from 18% last quarter.
Roughly 100 money managers who manage assets for Northern Trust and its clients were surveyed between March 14 and 27.