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Northern Trust survey: Managers more positive about economy, corporate earnings

Following the U.S. presidential election, money managers are more positive about the U.S. economy and corporate earnings, said Northern Trust's fourth-quarter investment manager survey released Tuesday.

Fifty-five percent of managers surveyed by Northern Trust expect U.S. GDP growth will accelerate over the next six months, up 26 percentage points from the previous quarter. Another 38% expect U.S. GDP growth will remain stable and 8% expect it to decelerate, vs. 63% and 8%, respectively, in the third quarter. Percentages don't total 100% due to rounding.

Accordingly, 78% of managers expect inflation to increase over the next six months, the highest reading in the survey's eight-year history, and up from 47% in the third quarter.

Also, 62% of managers surveyed expect U.S. corporate earnings will increase over the next three months, while 32% expect earnings to remain the same and 6% expect earnings to decrease, compared to 33%, 50% and 17%, respectively, from the previous quarter.

The fourth-quarter survey also asked managers to rate the likelihood of the passage of the Trump administration's proposed policies by the end of 2017 and 2018 and found that managers view a corporate tax rate cut as the most likely change in 2017, followed by a personal income tax rate cut and “minor” repeal of the Affordable Care Act, also known as Obamacare. Managers ranked a “partial/significant” repeal of the ACA, significant immigration policy reform and trade tariffs as the least likely changes in 2017.

Other findings from the fourth-quarter survey include:

  • Despite rising inflation expectations, 81% of managers surveyed expect only one or two Federal Reserve rate hikes in 2017.
  • Managers cited trade policy as the top risk to global equity markets, followed by a rise in interest rates, and geopolitical risk, up from seventh place last quarter.
  • 18% of managers reported having above-normal allocations to cash in the fourth quarter, down from last quarter's high of 23%.
  • Equity valuations improved for all regions in the fourth quarter; 19% of managers now believe that U.S. equities are undervalued, up from 13% last quarter, while 36% believe Japanese equities are undervalued, up from 25%; 53% believe European equities are undervalued, up from 31%; and 61% believe emerging markets equities are undervalued, up from 49%;
  • Managers are most bullish on U.S. small-cap equities, followed by emerging markets equities, and commodities. Respondents were most bearish on U.S. fixed income, non-U.S. bonds and local currency emerging markets debt.

Roughly 100 money managers who manage assets for Northern Trust and its clients were surveyed Dec. 9-20.