More money managers believe U.S. equities are overvalued, said Northern Trust’s second-quarter investment manager survey released Thursday.
Forty-six percent of managers now believe U.S. equities are overvalued, the highest reading in the survey’s seven-year history and up from 30% last month. Meanwhile, 35% of managers believe U.S. equities are appropriately valued compared to 46% last quarter and 18% believe they are undervalued, compared to 24% last quarter. Some categories may not total 100% due to rounding.Twenty-one percent of managers surveyed by Northern Trust also reported having above-normal allocations to cash in the second quarter, similar to last quarter, and compared to 12% on average since the second quarter of 2009.
Managers were more positive on U.S. GDP growth in the second quarter but less positive on job growth.
Forty-two percent of managers now say GDP growth will accelerate over the next six months, up from 37% in the first quarter. Another 49% of managers expect GDP growth to remain the same and 9% expect it to decelerate vs. 57% and 6%, respectively, in the first quarter.
At the same time, 33% of managers say U.S. job growth will decelerate but remain positive over the next six months vs. 27% last quarter. Another 6% of managers expect job growth to accelerate (the same as last quarter but tied for lowest reading since the question was introduced in the second quarter of 2011), while 2% expect it turn negative and 59% expect it to remain stable, compared to 67% last quarter.
For the fourth consecutive quarter, managers cited an emerging markets slowdown as the top risk to global equity markets, followed by a U.S. economic slowdown (up two spots from last quarter), lower U.S. corporate earnings (down one spot) and the U.S. presidential elections (up four spots). (The survey did not include the June 23 Brexit vote on the list of risks.)
The survey’s other key findings include:
- Managers’ outlook on U.S. corporate earnings remained relatively stable with 33% expecting earnings will increase over the next three months, 44% expecting earnings will remain the same and 24% expecting earnings will decrease (compared to 34%, 42% and 24% in the previous quarter).
- 78% of managers surveyed believe the Fed will not raise rates or raise rates only once in the remainder of 2016; the remaining 22% believe the Fed will raise rates twice more in 2016.
- 58% of managers believe the popularity of passive investing has changed market behavior, and about 25% of those managers have adjusted their investment processes, including liquidity and trading practices, as a result.
- 67% of managers expect the Chicago Board Options Exchange’s Volatility index to increase over the next six months, up from 53% last quarter, while 3% expect volatility to decrease and 31% expect it to remain stable, compared to 22% and 25%, respectively, last quarter.
About 100 money managers who manage assets for Northern Trust and its clients were surveyed June 3-17.