Investment managers are becoming less positive on the U.S. economy and corporate earnings due to the expected negative impact of a recession in Europe and slower growth in China, according to a survey conducted in the second quarter by Northern Trust Bank.
However, fewer than 10 percent of the investment managers believe the global risks will be severe enough to push the U.S. economy into another recession.
A majority of the 100 investment managers surveyed in mid-June by Northern Trust believe Greece will either remain in the European Monetary Union or make an orderly exit from the currency, while 31 percent expect a Greek exit from the Eurozone will create a contagion effect that spreads recession to other countries.
Nearly a quarter of managers surveyed believe countries other than Greece will leave the Eurozone.
“As a result of these macro concerns and higher levels of uncertainty, our survey shows that the previously positive outlook for U.S. economic growth has deteriorated this quarter,” said Chris Vella, chief investment officer for Northern Trust Multi-Manager Investments. “While investment managers are not anticipating that the U.S. will fall into a recession, the vast majority believe that the U.S. will face a more severe slowdown than anticipated. Growing numbers of managers expect market volatility to increase and are holding above average levels of cash this quarter, reflecting their cautious stance.”
Northern Trust’s survey found some cause for optimism: A growing majority of managers (67 percent) find U.S. equity markets to be attractively valued, with more than a quarter seeing more than 10 percent upside. One-third of respondents see housing prices rising in the next six months – the highest number since the survey began in the third quarter of 2008.
“Investment managers continue to have confidence in U.S. large cap equities and are most bullish on the information technology, consumer discretionary and healthcare sectors,” said Kelly Finegan, an investment analyst for Northern Trust Multi-Manager Investments, who oversees the survey. “U.S. small caps and emerging markets equities are also favored, and more managers are bullish on private real estate. This quarter, the outlook for energy stocks deteriorated and managers remain most negative about utilities, with more than half expressing a bearish view on that sector.”
Twenty percent of managers expect U.S. gross domestic product growth will accelerate in the next six months, down from 43 percent with that view in the first quarter, and the smallest portion holding that view since the first quarter of 2009. Thirty percent expect GDP growth to decelerate, up from 13 percent in Q1.
Forty percent of managers expect job growth to decelerate through the second half of 2012, compared to 16 percent who held that view in the first quarter; 37 percent believe job growth will remain stable, down from 49 percent in the first quarter and 55 percent in the fourth quarter of 2011.