Fund Managers See Modest Market Gains In 2nd Half

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Fund managers expect the stock market will get through a bout of bearishness and post modest gains in the second half of 2001, according to a new survey released by CDC Nvest Funds, Boston, a multi-manager fund group.

The survey, which polled 29 mutual fund managers and teams at 10 different firms, shows that most managers predict modest market activity during the second half of the year. On average, they predict the Dow Jones Industrial Average will reach 10,859, up 3.4% from the second quarter of this year; the S&P 500 will reach 1,277, up 4.3%; and the tech-heavy NASDAQ will close at 2,184, a 1.1% increase.

According to the survey, fund managers are certain the Federal Reserve Boards further rate cuts will help the economy without triggering inflation. About 93% of respondents expect that the Fed will continue to navigate the remainder of the year with more interest rate cuts, while 86% predict that the inflation rate will remain the same or even fall over the next six months. Fifty-five percent anticipate no change in inflation before the end of the year, while 34% expect to see a decline.

Fund managers, however, are divided over whether technology will help the market bounce back over the remainder of the year. Forty-one percent believe technology will rebound and lead the market, while another 41% list technology as a sector most likely to be a drag.

Similarly, fund managers are split over the role the Old Economy sector will play in the second half. Twenty-eight percent choose the energy and oil sector as a leader, while 28% see it as a laggard. However, 55% believe value stocks will outperform growth stocks.

About 33% of those surveyed say small-cap equities will lead the market, while another 33% believe mid-cap equities will post the best gains.

Significantly, 17% believe corporate bonds will be the best bet for the next six months.

Survey results support the case for diversification. “This survey reinforces the need for all investors to maintain a diversified portfolio,” says John T. Hailer, president and CEO at CDC Nvest Funds.

Concerning the driving factor in the economy, about 50% of respondents believe that corporate earnings will have the most significant impact on the equity market during the second half because earnings will begin to improve as a result of the rebuilding of inventories. One-third of those surveyed say investor confidence is the major factor because if it sags it will weaken consumer spending and help economic growth turn negative in the remainder of the year.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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