The end of the recession is in sight, money managers say.
Their spirits are buoyed by improved corporate earnings. And while the path to recovery might not be smooth, most see a light at the end of the tunnel.
“We're approaching the end of the recession,” said Gary Schlossberg, senior economist at Wells Capital Management, San Francisco. “It's transitioning from recession to recovery. And along with that, there's better visibility with earnings.”
Diane Garnick, investment strategist for Invesco Ltd. in New York, said results so far from second-quarter earnings have been pleasantly surprising, with companies posting positive numbers based on sales growth instead of through cost-cutting measures, as had been expected.
Ms. Garnick said Invesco's investment thesis at the beginning of the year was that households were borrowing more money than they could pay back and companies would take a long time to recover. But things have changed.
“Companies and consumers are repairing balance sheets faster than expected,” she said.
Last week, the S&P 500 index climbed 4.13%, powered by unexpectedly strong earnings from companies including Ford Motor Co. and AT&T Inc. There were some disappointments, however, as Microsoft Corp. and Amazon.com Inc. reported weak results.
A recent survey by Northern Trust Global Advisors found that 39% of the 70 institutional managers polled expect corporate earnings to increase in the next three months, a sharp contrast to the mere 1% who thought the same in the first quarter.
About 32% expect corporate earnings to decrease in the next three months, which goes to show how cautious some managers still remain. But pessimism from the first quarter — when 90% anticipated a decrease in reported earnings — has dissipated.
“It's less a consequence of good news than an abatement of bad news,” said Janet Yang, second vice president at The Northern Trust Co., Chicago. “This non-stop descent into disaster has come to an end.”
The more upbeat views have led some managers to shrink their cash holdings and invest in securities, including stocks. Of the ones surveyed by Northern Trust, 4% characterized their cash holdings as greater than their normal levels or hitting their maximum. But that was down from 8% of managers surveyed in the first quarter.
More notably, the percentage of managers with cash holdings at or below their historic norm grew to 19% from 4% in the first quarter.
Ms. Yang said managers are starting to get out of cash and government bonds and move into equities and high-yield debt. Based on survey results, she noted that U.S. small-cap equities is considered the most attractive subasset class now, followed by emerging markets stocks.