A record 65% of money managers believe U.S. equities are overvalued, said Northern Trust's second-quarter investment manager survey released Thursday.
Meanwhile, another 36% of managers believe U.S. equities are undervalued or fairly valued, the lowest reading since Northern Trust's survey began in the third quarter of 2008. Some percentages don't total 100% due to rounding.
Last quarter, 51% of managers believed U.S. equities were overvalued, while 49% said they were undervalued or fairly valued.
Despite the valuation readings, managers' outlook for U.S. GDP growth, corporate earnings and inflation remained favorable, said Christopher Vella, chief investment officer of multimanager investments at Northern Trust Asset Management, in a news release. Most managers (60%) expect U.S. GDP growth to remain stable over the next six months, compared to 50% in the first quarter. Another 29% expect U.S. GDP growth to accelerate and 11% expect it to decelerate, compared to 44% and 6%, respectively, last quarter.
Additionally, 50% of managers surveyed expect U.S. corporate earnings will increase over the next three months, while 38% expect earnings to remain the same and 12% expect earnings to decrease, vs. 46%, 46% and 7%, respectively, in the first quarter.
Sixty-six percent of managers, meanwhile, expect interest rates to rise over the next three months, down from 79% in the first quarter, and 42% expect inflation to increase over the next six months, down from 63% last quarter.
Other findings from the second-quarter survey include:
- Managers cited a geopolitical incident as the top risk to global equity markets, up from second place last quarter, followed by a U.S. economic slowdown, up from seventh place, and U.S. corporate earnings, up from fifth place. Trade policy, which was cited as the top risk in the first quarter, fell to fourth place in the second quarter.
- 42% of managers believe there is a moderate to strong chance that policy disagreements between the U.S. and its trading partners and allies could negatively affect financial markets; 55% do not believe financial markets will be affected in the short term, and the remaining 3% believe financial markets could be positively affected.
- 86% of managers believe European equities are undervalued or fairly valued, compared to 80% last quarter; 87% believe emerging markets equities are undervalued or fairly valued, in line with last quarter.
- Managers are most bullish on emerging markets equities, followed by non-U.S. developed markets equities, similar to last quarter; managers are most bearish on U.S. fixed income, followed by hedge funds and commodities.
- 49% of managers described the cost of addressing regulatory requirements since 2008 as "modest but an evident portion of the firms' incremental costs," while 24% described incremental costs as moderate, 21% described them as small and 7% believed they have been high.
About 100 money managers who manage assets for Northern Trust and its clients were surveyed June 7-22.