After two quarters of declining sentiment about the U.S. economy, investment managers had more positive views on the U.S economic outlook in the most recent quarterly survey by Northern Trust Asset Management. At the same time, managers expressed doubt that negative interest rate policies introduced by central banks in Europe and Japan would help spur economic growth outside the U.S.

The survey of 100 investment firms also gauged views on the valuation of equity markets following the global market sell-off in January and February, the direction of oil prices and the likelihood of 'Brexit' - a British exit from the European Union - in an upcoming UK referendum.

'The outlook on U.S economic growth and corporate profits improved in the first quarter of 2016, despite the extreme market volatility that started the year,' said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. 'While managers are still cautious on the outlook for U.S. corporate profits and most economic indicators, we are seeing a change from the trend of declining expectations in the second half of 2015.'

The survey, taken March 3-18, found that 37 percent of managers expect U.S. gross domestic product (GDP) to accelerate in the next six months, up from 23 percent with that view in the fourth quarter. Another 57 percent expect U.S. GDP growth to remain stable, and just 6 percent expect GDP growth to slow, down from 13 percent who expected slower growth in the previous quarter.

U.S. corporate profit expectations were also up, with 34 percent expecting an increase in earnings, up from 23 percent in the prior survey. A larger share of managers expect housing prices to increase over the next six months: 60 percent versus 49 percent in the fourth quarter of 2015. More than half the managers (54 percent) expect inflation to increase over the next six months, well above the long-term average of 35 percent for the question.

Following the recent market declines, 83 percent of managers believe global equity markets are either undervalued or fairly valued, while 17 percent still view global equities as overvalued. Managers were most bullish on emerging market (EM) equities and 59 percent, the highest reading since the third quarter 2014, view them as undervalued. Approximately 77 percent of managers view credit markets as fairly valued or undervalued.

Topical Questions: Negative Rates, Oil and Brexit
As the European Central Bank and Bank of Japan introduce negative interest rates as a monetary policy tool, about one-third of managers believe that negative rates will be helpful in spurring additional economic activity policies in those regions, while 23 percent expect it will reduce economic growth in these regions, and 43 percent predict little to no impact on growth. A majority, 55 percent, believe negative interest rate policies overseas will keep 2- to 10-year U.S. Treasury note rates very low.

Managers were also asked where they expect oil prices will trade in the next nine to 12 months, after West Texas Intermediate Crude dropped to less than $30 per barrel from more than $100 during the past 19 months. Only 2 percent of managers expect oil will trade below $30 again in that period, and 94 percent expect the price will be between $30 and $60.

Regarding the June 23 referendum in the United Kingdom, 82 percent of managers believe that U.K. voters will choose to stay in the EU. However, should voters opt to leave, 61 percent of managers believe it would hurt the British economy, while 35 percent expect a Brexit would have little to no impact on the UK economy.

Assessing Risks and Opportunities
Despite their bullish view on Emerging Markets (EM) equities, managers ranked EM economic growth as the top risk facing equity markets for the third quarter in a row, followed by U.S corporate earnings and changes to U.S. monetary policy. Oil prices ranked fifth and the U.S. Presidential primaries and election ranked eighth out of 10 on the list of risks.

After increased volatility in a number of markets, a higher percentage of managers - 22 percent versus 10 percent in the previous quarter - expect the Chicago Board Options Exchange Volatility Index (VIX) to decline over the next six months. A higher percentage, 21 percent, have above-normal cash levels currently in their portfolios, compared to the long-term average of 12 percent, suggesting a slightly defensive stance.

'Volatility in the markets during the first quarter created opportunities for some managers,' said Mark Meisel, Senior Investment Product Manager for Multi-Manager Solutions at Northern Trust. 'Continuing an upward trend, 22 percent of managers increased their commodities exposure, up from only 7 percent in the fourth quarter of 2014. Managers are seeing improved valuations in a number of markets.'

On the bull-bear indicator, information technology remained the top-ranked sector, and consumer discretionary moved up to second from third rank in the previous quarter. Among asset classes, non-U.S. developed markets, U.S. small cap equity and U.S large cap equity followed EM equities as the highest rated, with U.S. bonds, cash, and emerging-market debt (hard currency) at the bottom of the ratings.

For its survey, Northern Trust polls investment firms that participate in its multi-manager investment programs and funds. The select group of respondents includes fixed income and equity managers across value and growth styles, with a bias toward fundamental, bottom-up stock picking strategies. The survey is conducted quarterly so that Northern Trust and participating managers can examine trends in attitudes and allocations. The full Investment Manager Survey Report and a video on survey highlights can be found on Northern Trust's web site at www.northerntrust.com/managersurvey.

Northern Trust Asset Management is a global asset management firm serving institutional and individual investors in 29 countries, with $900 billion in assets under management as of March 31, 2016. Northern Trust Asset Management offers proprietary and multi-manager solutions across all markets and asset classes, from passive to actively managed strategies, delivered in multiple vehicles. For more information, please visit our website or follow us on Twitter @NTInvest.

Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, 50 South Capital Advisors, LLC, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.

About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2016, Northern Trust had assets under custody of US$6.2 trillion, and assets under management of US$900 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com or follow us on Twitter @NorthernTrust.

Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at http://www.northerntrust.com/disclosures.

Northern Trust Corporation issued this content on 21 April 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 21 April 2016 14:02:10 UTC

Original Document: https://www.northerntrust.com/about-us/news/press-release?c=b169c611c0e55144f43eae6d9ae4ea1d