When this subset of managers (the 79%) were asked what economic indicators support their position, 78% cited strong corporate balance sheets and high corporate profit levels, and nearly half (49%) also pointed to the U.S. Federal Reserve’s decision to keep interest rates low until mid-2013. Other economic indicators cited by managers as support for their opinion include declining oil prices and U.S. dollar weakness. While they do not see a recession coming, 62% of this majority group indicated that they do expect growth to remain low for the next several years.
Among those managers who believe the U.S. economy is entering or already in a double-dip recession (11% and 10%, respectively), recovery in employment levels was cited by 95% as the key requirement for either avoiding or leading the U.S. out of recession. This group also pointed to the need for improved consumer confidence/consumption (45%) and the resolution of U.S. and/or European debt issues (both 40%).
“We have seen a consistent spate of negative economic news that has certainly impacted investors’ confidence in the markets and we continue to see notable volatility. Yet among professional money managers we are seeing a focus on fundamentals such as strong corporate profits that is supporting an overall bullish sentiment, particularly for large cap U.S. corporate stocks,” said Rachel Carroll, Client Portfolio Manager at Russell Investments. “While we believe managers’ low expectations for overall economic growth are realistic, the collective bullish sentiment and their views on market valuations indicate that they see a buying opportunity in the equity markets.”
Debate about the double-dip recession aside, more than half of the managers surveyed (57%) say the market is currently undervalued – more than double the percentage that felt the same in the June 2011 survey (26%). Only 10% of managers currently believe the market is overvalued, and 32% believe it is fairly valued (dropping from 61% in June).
Manager optimism regarding U.S. large cap equities saw an increase in the latest survey, likely reflecting their views on opportunities in the equity markets. Bullish sentiment for U.S. large cap growth stocks increased 13 percentage points from the June survey to 73%, and bullishness for U.S. large cap value stocks hit an all-time survey high at 63%, up 14 percentage points from June.
Bullishness for emerging market equities also saw a notable increase in the latest survey, reaching an all-time survey high at 74%, up 15 percentage points from June. Over the same period, bullishness for non-U.S. (developed market) equities fell eight percentage points to 45%.
IMO is a quarterly survey conducted by Russell Investments. The latest survey took place between August 23 and September 2. For more information on the survey, visit http://www.russell.com.