Institutional Managers: Romney or Obama, US Markets to Rise

Whatever the election outcome, a Northern Trust survey showed managers are bullish on the United States’ housing and equity markets.

(October 5, 2012) – The fiscal cliff and Eurozone crisis are no match for the clarity a Presidential election will bring—no matter who wins—institutional managers told Northern Trust in a recent survey. 

The mid-September survey of approximately 100 fixed-income and equity managers showed a marked increase in optimism for the US economy as whole over previous quarterly polls. 

“Expectations for a rebound in housing, stable, or increased job growth and a positive impact from the Federal Reserve’s third round of quantitative easing appear to have overcome for now the global and macroeconomic issues that weigh on investors’ minds,” said Chris Vella, chief investment officer for Northern Trust Multi-Manager Investments, in a statement. “Managers indicate the US election will provide clarity to the markets, regardless of the outcome.” 

In total, 28% of respondents predicted the election will have a positive effect on the market, while 52% see the event as neutral and 19% as negative. The majority (62%) saed their outlook does not depend on who actually wins

The sector most institutional managers believed will flourish in coming six months is housing, with 69% anticipating prices will increase. In the second quarter of this year, just 33% felt the same way. In fact, data indicates that respondents were overly pessimistic in the previous survey. The National Association of Home Builders/Wells-Fargo Housing Market Index rose 37.9% between June and September of this year. 

Respondents also saw less downside risk for the US economy overall, with 87% predicting GDP growth will remain stable or pick up over the next six months. In the second-quarter survey, 70% felt that way. Along with GDP and housing market improvements come jobs, the majority of managers suggested. In total, 83% foresaw job growth either picking up or remaining stable, while 18% think it will decelerate. In the prior survey, 40% of managers had a negative outlook on the employment situation. 

Equities, too, were an area of optimism for most managers surveyed. “In this environment, managers continue to be most bullish on US large cap equities, followed by emerging markets and US small caps,” said Kelly Finegan, an investment analyst for Northern Trust, who oversees the survey. “Information technology remains the favorite sector, with 74% bullish or very bullish on its outlook.”  

However one aspect of the markets that has been particularly troublesome for institutional investors was seen to persist: volatility. In fact, 69% of respondents predicted markets will become more volatile, as measured by the S&P 500’s VIX index. Since reaching a high in August 2011, the index has fallen by nearly 70%. The current state is consistent with pre-crisis levels, but tail-risk worries have grown as the Eurozone crisis lurches on.

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