Even though the US economy is showing signs of weakness, with muted GDP growth and high interest rates and inflation, fund managers remain optimistic about the potential to make good returns, according to a Quilter survey.
More than 20 fund management firms collectively representing £22trn in assets were asked to rank their current risk appetite on a scale of one (very bearish) to 10 (very bullish) on a six-to-nine-month basis.
The average score was 5.4, revealing that fund managers are not overly confident but they are not pulling back from global markets either.
Lindsay James, investment strategist at Quilter, said: “News of slowing GDP growth, sticky inflation, tariffs and interest rates getting stuck would suggest now is the time to be bearish.
“Indeed, after a strong rally following the ‘Liberation Day’ induced falls in April, market participants would be forgiven for wanting to take a breather and remove risk from the table. However, this appears to be far from reality and, in fact, fund managers remain ‘cautiously bullish’ on the prospects for future returns.”
According to survey respondents, US GDP growth is expected to be just 1.3% in 2025 – down from over 2% earlier this year. The fund managers also expect weak growth forecasts for the UK and Europe at 0.9% a piece, down from just over 1%.
Despite slow growth, managers expect interest rates in the US to hover around 4% – before dropping to 3% by the end of next year – and inflation to reach 3% this year and 2.8% in 2026.
Even though economic indicators are weak, the market is telling a different story. Quilter noted that the MSCI USA index is up 24.5% since April and up 2.2% for the year.
James said: “Valuations remain toppy in some areas, so for how long such sentiment can continue remains to be seen, but if corporate earnings continue to resist the weak economic backdrop, markets may just have a little higher to go from here.
“A lot of this hinges on what the Fed does with interest rates and how businesses in America deal with increased costs from tariffs.”
Although US president Donald Trump has made headlines in recent weeks for his continued pressure on Fed chair Jerome Powell to cut drastically cut rates (and for attempting to fire Fed governor Lisa Cook), most fund managers said Powell will remain in his role until his term ends in May next year, with just 12% expecting him to be removed from his post early.
“The market expects Powell to stay as Federal Reserve chair and, while the US economy has not quite rolled over, it is clear it is being stressed at the seams,” said James.
“A sustained period of rate cuts, therefore, looks unlikely, while it will probably be the US consumer that bears the brunt of the tariffs.
“As such, there appears to be risks lurking around every corner for investors, but confidence clearly has not been shattered. Consequently, it will be fascinating to track the sentiments of these fund groups going forward.”