Economic Conditions in the U.S. Remain Strong

Although October has been a volatile month in the markets, fund managers’ expectations for the U.S. economy are positive, as strong fundamentals prop up the domestic mood.

The Bank of America Merrill Lynch Fund Manager Survey for October, which queries 200 fund managers globally who represent nearly $700 billion in assets, found that 85 percent of respondents said the world economy has reached its late cycle period of growth, the highest reading since 2008, CNBC reported. But respondents indicated they are far more bullish on the U.S. economic outlook.

Positive U.S. Outlook

The optimism for the domestic outlook comes amid recent economic performances and leading indicators that remain overwhelmingly positive.

The S&P 500 is up more than 330 percent since the beginning of the bull market in March 2009 following the global financial crisis. Employment remains robust, corporate earnings are healthy and wage growth is starting to strengthen. Business and consumer sentiment indicators remain positive.

In an October speech, Federal Reserve Chairman Jerome Powell said the combination of low unemployment (3.9 percent) and inflation that is around the Fed's target of 2 percent are driving expectations for a continued expansion.

“While these two top-line statistics do not always present an accurate picture of overall economic conditions, a wide range of data on jobs and prices supports a positive view,” Powell told economists at a Boston conference. “In addition, many forecasters are predicting that these favorable conditions are likely to continue.”

The Leading Economic Index, which helps forecast U.S. economic conditions, hit its highest levels on record in the third quarter. However, The Conference Board, which produces the index, said it is observing key indicators closely as we head into 2019.

“The U.S. LEI improved further in September, suggesting the U.S. business cycle remains on a strong growth trajectory heading into 2019. However, the LEI's growth has slowed somewhat in recent months, suggesting the economy may be facing capacity constraints and increasingly tight labor markets,” said Ataman Ozyildirim, director and global research chairman at The Conference Board. “Economic growth could exceed 3.5 percent in the second half of 2018, but, unless the momentum in housing, orders and stock prices accelerates, that pace is unlikely to be sustained in 2019.”

Global Caveats

While the outlook for the U.S. economy remains largely positive, the most recent Fund Manager Survey shows that expectations for the rest of the world are less optimistic.

In addition, the International Monetary Fund recently announced that it now expects the global economy to grow 3.7 percent this year and next year, a 0.2 percentage-point decline from an earlier forecast.

While the optimism is stronger for the U.S., there are still opportunities globally, but additional due diligence may be required.


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