Money managers are more positive about the U.S. economy but are concerned about economic growth outside the U.S., said Northern Trust’s first-quarter investment manager survey released Thursday.
Thirty-seven percent of managers surveyed by Northern Trust expect U.S. GDP growth will accelerate over the next six months, up 14 percentage points from the previous quarter, while another 57% expect U.S. GDP growth will remain stable and 6% expect it to decelerate, vs. 64% and 13%, respectively, last quarter.
Also, 34% of survey respondents expect U.S. corporate earnings will increase over the next three months, 42% expect earnings to remain the same and 24% expect earnings to decrease (compared to 23%, 53% and 24% the previous quarter). However, weaker U.S. corporate earnings continue to rank second among the eight possible risks to equity markets over the next six months.
For the third consecutive quarter, managers cited an emerging markets slowdown as their top concern, despite 59% of respondents believing emerging markets equities are undervalued, the highest reading since the third quarter of 2014 and up from 52% last quarter.
Managers are divided on how negative interest rates at the European Central Bank and Bank of Japan will impact economic growth in those regions, the survey found, with 43% expecting they will have little to no impact, 23% expecting slower economic growth and the remainder expecting they will spur economic growth. In terms of their impact on the U.S., most managers (55%) believe negative interest rates in Europe and Japan will keep two- to 10-year U.S. Treasury note rates very low.
The survey’s other key findings include:
- 83% of managers surveyed believe global equity markets are undervalued or fairly valued, while the remaining 17% believe they are overvalued;
- 23% of managers believe credit markets are overvalued vs. 77% that say they are fairly valued or undervalued;
- 61% of managers believe Brexit — the U.K. leaving the European Union — would hurt the British economy; and
- 58% of managers expect interest rates to remain the same over the next three months, despite 54% of managers expecting inflation to increase over the next six months.
“The outlook on U.S economic growth and corporate profits improved in the first quarter of 2016, despite the extreme market volatility that started the year,” said Christopher Vella, senior vice president, chief investment officer and managing director of Northern Trust’s multimanager solutions unit, in a news release. “While managers are still cautious on the outlook for U.S. corporate profits and most economic indicators, we are seeing a change from the trend of declining expectations in the second half of 2015.”
About 100 money managers who manage assets for Northern Trust and its clients were surveyed March 3-18.