Investing October 10, 2013

Managers Not Fearing Debt Impasse, Fed Tapering

October 10, 2013 (PLANSPONSOR.com) – Worries about the Federal Reserve curtailing its quantitative easing program have not lowered investment managers’ confidence in the wider U.S. economy. Neither has the polarized federal debt ceiling debate, according to a recent survey.
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In a quarterly survey of about 100 investment managers taken by wealth and asset management firm Northern Trust, most respondents characterized the U.S. economic outlook as “resilient,” even as the Federal Reserve prepares to start ramping down the quantitative easing program with which it has been trying to drive stronger growth.

Nine out of 10 respondents also indicated they expect the political standoff over the federal government shutdown and the U.S. debt ceiling would have “at the most a modest impact on U.S. equity markets.”

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Managers expressed optimism on several key economic factors, including the following:

  • Almost nine in 10 (86%) believe job growth will either remain stable or accelerate over the next six months;
  • Seven in ten (71%) expect housing prices to rise over the next six months; and
  • Slightly less than nine in 10 (89%) expect corporate profits to remain stable or increase in the next quarter. 

Monetary policy worries still prevalent, despite optimism

Interestingly, even as the surveyed investment managers played down the impact of the Federal Reserve’s warning that it would soon begin tapering it’s quantitative easing program, they still identified changes in Federal Reserve monetary policy as the top risk to equity markets looking forward.

More than 60% of respondents said the U.S. economy will keep growing if the 10-year interest rate rises by 50 basis points, and 42% of managers said long-term rates could rise by 100 basis points without stifling economic growth.

At the time the survey was taken, 53% of managers expected the impasses in Washington will lead to a modest decline (less than 10 percent of the S&P 500 Index) in the U.S. equity market, while 40% expected little to no effect on the market.

Additional survey results, along with description of the survey methodology, can be found here. 

For another take on the impact of the government debt ceiling stalemate, readers can reference the American Society of Pension Professionals & Actuaries' (ASPPA) latest report, which takes a significantly more pessimistic view. 

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