A recent survey conducted by Northern Trust reported that the cessation of securities purchases by the Federal Reserve (tapering) is the greatest risk facing the equities markets.
The survey added that any change in Federal Reserve policy or the tapering of quantitative easing done via its ongoing securities purchase program has the potential to hurt the equity markets, according to its investment manager survey released last week.
Despite the concern over the end of the Fed’s tapering policy, 53 percent of money managers surveyed said an adjustment to the current level of tapering would lead to a decline of less than 10 percent in the S&P 500 index. Forty percent said there’d be little or no effect to the index.
In a breakdown of the global equity marts, Northern Trust reported in its survey that 39 percent of money managers said the U.S. market is fairly valued while 33 percent said it was undervalued. Managers said they were most bullish on U.S. large-cap and small-cap equity, and emerging markets equity.
Twenty-three percent of those surveyed said they expect emerging markets to outperform developed markets over the next six months.
Survey respondents also commented that the ongoing government shutdown or failure to raise the debt ceiling will hurt the U.S. economy overall. Sixty percent of those surveyed said the U.S. economy and GDP will not go lower even if 10-year Treasury rates increase 50 basis points. Forty-two percent said that yields could even move a full 100 basis points or 1 percent higher and the economic growth would be unharmed.
Only 8 percent of managers surveyed saw U.S. GDP growth slowing, while 55 percent said it will actually accelerate, up from 45 percent in the previous quarter. Thirty-seven percent said growth will remain the
same.
Expectations on other economic growth factors remained strong in the third quarter with little change from the previous quarter’s survey: 86% said job growth will remain stable or accelerate over the next six months and 89% expect corporate profits to remain stable or increase in the fourth quarter.
The survey is based on replies from 100 institutional money managers surveyed by Northern Trust in mid-September.
