Money manager optimism on several key U.S. economic indicators continues to grow, according to Northern Trust's quarterly investment manager survey.
Ninety-nine percent of surveyed managers expect U.S. economic growth to remain stable or increase over the next six months, up from 92% the previous quarter. While 69% expect interest rates to increase when the Federal Reserve starts tapering its bond purchases, managers continue to be bullish on equities and economic growth factors. For example, 95% said job growth will be steady or increasing over the next six months, up from 86% the previous quarter, and 64% expect corporate profits to increase over the next three months, up from 49%. Overall, 95% said earnings will be stable or increase in the next three months, up from 88%. For job growth, 44% expect it to accelerate in the next six months, the highest percentage since Northern Trust started asking the question in 2011.
Even with increased optimism, 64% of managers expect volatility will increase over the next six months, and 34% became more risk averse in their portfolios in the fourth quarter, compared to 20% in the third quarter.
Emerging markets equities were seen as undervalued by 57% of respondents, followed by European equity, 52%; U.S. equity, 36%; and Japan equity, 31%. Ninety-three percent of managers do not think the U.S. equity market has created a bubble, and a similar number, 91%, thinks the federal budget and debt ceiling negotiations will have either no or a modest impact on U.S. equities.
For specific asset classes, respondents were most bullish on U.S. large-cap equity, followed by non-U.S. developed markets equity and emerging markets equity.
While the survey took place before the Fed announced tapering, 69% of respondents said 10-year Treasury rates will rise further if tapering starts by the end of the first quarter. Another 30% expect rates to stay the same.
About 100 institutional money managers were surveyed Dec. 3-18.