Institutional investment managers anticipate a rebound in the housing market and see less downside risk for U.S. economic growth over the next six months, despite a mixed outlook on corporate earnings and concerns regarding a potential “fiscal cliff” in the U.S. and the ongoing financial crisis in Europe, according to a quarterly survey by Northern Trust. Investment managers surveyed in mid-September also expect the U.S. presidential election will have little effect on the markets: 52 percent predict a neutral impact, 28 percent expect a positive impact and 19 anticipate a negative impact from the election. Most (62 percent) said their response was not dependent on which party wins the election. “Manager sentiment regarding the U.S. economy seems to have rebounded in the third quarter after dipping at mid-year,” said Chris Vella, Chief Investment Officer for Northern Trust Multi-Manager Investments. “Expectations for a rebound in housing, stable or increased job growth and a positive impact from the Federal Reserve’s third round of quantitative easing appear to have overcome – for now – the global and macroeconomic issues that weigh on investors’ minds. And managers indicate the U.S. election will provide clarity to the markets, regardless of the outcome.” The survey of approximately 100 institutional managers, conducted in mid-September by Northern Trust Multi-Manager Investments, showed a meaningful increase in positive expectations for the U.S. housing market. A large majority (69 percent) of managers expect U.S. housing prices to increase over the next six months, up from 33 percent in the second quarter of 2012. Managers also see less downside risk in U.S. economic growth. In the third quarter, 87 percent of respondents said GDP growth would remain stable or accelerate, up significantly from 70 percent in the second quarter. The outlook for job growth improved, with 57 percent expecting job growth to remain stable and another 25 percent anticipating a pick-up in growth over the next six months. Eighteen percent said job growth would decelerate, down from 40 percent who held that view in the second quarter survey.
The third round of quantitative easing in the U.S. will have a positive impact on the markets, according to 62 percent of respondents. However the U.S. debt ceiling and potential impact of a “fiscal cliff” are considered real risks to equities over the next six months, while the European debt crisis continues to be regarded as the top risk. The outlook for corporate earnings remained mixed in the third quarter, with 31 percent of managers forecasting a decline in fourth quarter earnings, 28 percent expecting an increase and 41 percent predicting no change from the previous quarter. Meanwhile, rising numbers of respondents expect market volatility and inflation to move higher over the next six months.“In this environment, managers continue to be most bullish on U.S. large cap equities, followed by emerging markets and U.S. small caps,” said Kelly Finegan, an investment analyst for Northern Trust Multi-Manager Investments, who oversees the survey. “Information technology remains the favorite sector, with 74 percent bullish or very bullish on its outlook.” Other details from the third quarter survey include:
- 69% think market volatility, as measured by the VIX, will increase over the next six months, an increase from 65% in the second quarter
- 21% of managers believe interest rates will rise by year end, up from 18% last quarter and 16% in the first quarter
- 27% expect higher inflation over the next six month, compared to 14% in the second quarter
- 57% are bullish on emerging market equities, up from 45% last quarter
- 74% reported a bullish outlook on information technology, 54% on the health care sector and 51% on the energy sector
Northern Trust is a leading provider of multi-manager investment solutions, with more than $35 billion under management as of June 30, 2012, for institutional and personal clients. Northern Trust invests with more than 200 external managers worldwide, offering personal and institutional solutions that include retail mutual funds, alternative asset classes, emerging manager programs and total investment program management.Asset Management at Northern Trust begins with listening and leads to answers beyond the expected for our clients. The multi-asset class investment management business is comprised of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., the investment advisor division of The Northern Trust Company and The Northern Trust Company of Connecticut and its subsidiaries which offer investment products and services to personal and institutional markets. About Northern Trust Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2012, Northern Trust had assets under custody of US$4.6 trillion, and assets under investment management of US$704.3 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.