Investment managers characterize the U.S. economy as resilient, whether or not the Federal Reserve curtails its current quantitative easing (QE3) program, according to a survey by Northern Trust. The survey of approximately 100 managers, taken between September 4 and September 18, also found nearly all -- nine out of 10 -- expected the political stand-off over the federal government shutdown and the U.S. debt ceiling would have at most a modest impact on U.S. equity markets. "Throughout 2013, investment managers have weighed the impact of politics and policy decisions against a steadily improving economy in their market outlook," said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. "Regarding the budget stand-off, it seems as if Washington’s continued infighting was not news to Wall Street, and managers expected that gradual strengthening of key indicators would prevail over short-term political factors. Optimism on the economy also appears to outweigh Fed policy changes that have been anticipated by the financial markets." Managers expressed optimism on several key economic factors:
86% believe job growth will either remain stable or accelerate over the next 6 months
71% expect housing prices to rise over the next 6 months
89% expect corporate profits to remain stable or increase in the fourth quarter
Investment managers identified a change in Federal Reserve monetary policy or QE tapering as the top risk to equity markets. Long-term interest rates are expected to rise when the Fed tapers its bond purchases under the QE program. However, more than 60 percent believe the U.S. economy will keep growing if the 10-year rate rises by 50 basis points, and 42 percent of managers said long-term rates could rise by 1 percent without stifling economic growth. At the time the survey was taken, 53 percent of managers expected the impasses in Washington over a continuing resolution to fund the federal government and a measure to authorize an increase in the federal debt ceiling will lead to a modest decline (less than 10 percent of the S&P 500 Index) in the U.S. equity market, while 40 percent expected little to no effect on the market.