Investment managers characterize the American economy as resilient, whether or not the Federal Reserve curtails its current quantitative easing (QE3) program, according to a survey.
The Northern Trust survey also finds that nine out of 10 expect the political standoff 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,” says Christopher Vella, chief investment officer for multi-manager solutions at Northern Trust.
Regarding the budget standoff, 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, he adds. “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 six months;
- 71% expect housing prices to rise over the next six months; and
- 89% expect corporate profits to remain stable or increase in the fourth quarter.
Most managers are expecting that Washington will sidestep the budget and debt ceiling issues prior to significant harm being inflicted on the markets.
Looking outside the U.S., managers are seeing value in emerging market equities after losses in those markets in 2013. Sixty-four percent of managers believe emerging market equities are undervalued, up from 49% in the second quarter.
However, managers don’t expect strong performance to return soon. Only 23% of managers expect emerging market equities to outperform developed market equities over the next six months.
Managers also view European equities favourably, with 53% saying European equities are undervalued. Sixty-nine percent of managers believe the Japanese equity market is undervalued or appropriately valued.
The survey of approximately 100 managers was taken before Janet Yellen was nominated as the next chair of the Federal Reserve earlier this week.