Investment managers expect a major stock market correction in 1994, which will prevent the Dow Jones Industrial Average from ending the year much higher than it did in 1993, according to a survey by The Consulting Group, a division of Smith Barney Shearson, Wilmington, Del.
Managers also expect short-term interest rates to rise significantly and long-term rates to stay somewhat flat. Consequently, 74% of managers think investors should be shortening their fixed-income maturities.
Over the next 12 months, 43% of the managers expect the best fixed-income returns to come from instruments with maturities of between three to seven years, according to the survey.
Among other findings, managers said the emerging markets offer international investors the greatest return opportunities over the next 12 months.
The poll, conducted between Dec. 15 and Jan. 4, included responses from 100 investment firms.
Despite the fact that about two-thirds of the managers said they expected a "major correction" in the next 12 months, only about one in 10 said they were increasing their cash positions. In fact, 21% said they were decreasing their cash positions.
Most managers, 81%, expect a decline of 15% or less. Only 8% expect a decline of more than 15%. The average projected level for the Dow Jones at year end was 3797. The Dow ended 1993 at 3754.
"On the surface, that may seem contradictory, however, they may have good reasons for not raising cash, said Len Reinhart, president of the firm.
"The best reason is no one can predict when the market will rise or fall. They recognize that over time, wrong predictions can hurt more than weathering the corrections. So they tend to stand pat, rather than act on the current mood."