Institutional investment managers are gaining confidence in the U.S. economy, but the European debt crisis continues to be the primary threat to equities markets, according to a survey conducted earlier this month by Northern Trust.
Of those surveyed, 81% said they expect job growth to remain stable or accelerate over the next six months, while 74% said they believe that economic growth, as measured by GDP, will remain stable or accelerate over the same period. And more than half (52%) expect corporate earnings to increase in the next three months.
However, this optimism is tempered by concerns over the ongoing debt crisis in Europe, with managers ranking this issue as the biggest risk to equity markets during the first half of 2012. More than half of managers (56%) believe that a continuation of the crisis will likely result in one or more countries being asked to exit the European Union.
“Most indicators continue to affirm that the U.S. economy is expanding modestly despite the ongoing events in Europe,” said Chris Vella, chief investment officer with Northern Trust Global Advisors. “Although market volatility has persisted and will likely continue to do so until the crisis is resolved, our manager responses this quarter seem to suggest the possibility that the U.S. market may decouple from Europe in 2012, driven by attractive valuation levels for many domestic stocks.”
Other major findings from the survey include the following:
- Managers were most bullish on U.S. large cap equities, U.S. small cap equities and emerging markets during the quarter. They were most bearish on conservative fixed income instruments such as treasuries and investment grade bonds.
- Managers identified technology, energy and consumer staples as the three sectors they are most bullish about going forward, while they are bearish on financials, utilities and materials.
- Respondents had mixed views on the potential impact from another sovereign debt downgrade in the U.S. While 51% said a downgrade would have minimal impact, 44% felt the impact would be negative, and only 5% said it would be positive.