More and more institutional investment managers are expecting the worst. They believe corporate earnings will decline, U.S. economic growth will slow and the European debt crisis will spill over to other areas of the market, this according to a survey by Northern Trust.
Survey respondents also see U.S. equities as undervalued, but see investment opportunities in U.S. large-cap and emerging markets equities, as well as in the technology, energy and healthcare sectors. More than half (52%) think the U.S. equity market is undervalued by more than 10%, and 36% expect U.S. economic growth to decelerate over the next six months, compared to 21% who held this view in the second quarter.
Looking at corporate earnings, 39% believe profits will decrease next quarter, compared to 15% who held that view in Q2. Those who expect corporate earnings to grow in the next quarter declined to 34% of respondents, down from 56% in the second quarter and the high point of 87% who held that view in the first quarter of 2010.
Some other highlights of the survey:
- Only 20% of managers are concerned about inflation. That’s down from 43% in the second quarter and 69% in the first quarter—a clear indication that growth expectations have been tempered by weakening economic indicators.
- Managers identify 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.
- Consistent with their generally negative outlook, only 19% of managers believe job growth will accelerate in the coming months, compared to 37% who held this view last quarter.