Money managers expect market volatility to increase following the U.S. election on Nov. 8 and still expect the Federal Reserve to hike interest rates before the end of the year, said Northern Trust's third-quarter investment manager survey released Thursday.
Of the approximately 100 money managers surveyed between Sept. 2 and Sept. 16, 89% expect increased volatility in the U.S. equity markets as a result of the U.S. election. Of that percentage, 55% expect the increase in volatility will be moderate, 19% of managers believe it will be small and 15% expect a large increase in volatility.
A mere 11% of managers do not see volatility increasing after the Nov. 8 elections.
When asked which outcome from the U.S. election would impact global equity markets the most, 72% believed a victory by Republican nominee Donald J. Trump would have the biggest impact, while 27% believe the potential of the Democratic Party gaining a majority of U.S. House of Representative seats would have the biggest impact. Only 1% of managers believed a Hillary Clinton victory would create the biggest impact on global equity markets.
At the time of the survey, 87% of managers believed the Federal Open Markets Committee would not raise rates at its September meeting, correctly so, but 71% of managers do expect the Fed to raise rates before the end of the year. A mere 29% believe rates will remain steady going into 2017.
Meanwhile, fewer managers predict that U.S. economic growth will accelerate over the next six months than did so in the second-quarter survey. Twenty-nine percent believed that would be the case, compared to 42% last quarter, while 63% of managers this quarter believe U.S. GDP will remain the same, compared to 49% last quarter. Only 8% of managers expect U.S. economic growth to decelerate.
Finally, managers are getting more defensive as they prepare their portfolios for a period of high volatility. Seventy-two percent of managers said their cash levels are equal to historic norms, and 23% of managers said their cash levels are above their strategies' historic norms. The latter percentage is equal to the survey's historic high. Only 5% are below their historic cash level.