Many managers fear that a housing slowdown could crimp consumer spending, a major driver of economic growth, according to Russell Investment Group's quarterly Investment Manager Outlook survey set to be released today. As stocks moved sharply lower in late February and early March, managers became increasingly bearish on market sectors sensitive to an economic downturn, such as basic materials and financial services.
The survey, conducted from Feb. 26 to March 5, overlapped with a stock-market slide. The Standard & Poor's 500-stock index fell 3.5% on Feb. 27 and dropped nearly 6% from Feb. 21 through March 5.
Of those managers responding after the downturn, 20% said a softening real-estate market is the biggest risk to U.S. stocks' performance over the next year, compared with 8% before the selloff. And as stocks dropped, managers became substantially more bullish on U.S. Treasury bonds, a traditional haven in times of market volatility. Of the managers responding after the downturn, 30% were bullish on Treasurys, compared with 10% of those before the downturn.
Managers cited increasing inflation as the greatest risk to U.S. stocks' performance, with many managers concerned that the economy's growth may be too strong.
Consumer spending is responsible for about 70% of US growth. Therefore, anything that effects it is important. This is a graph I put up yesterday, but it seems very pertinent to this story. It shows the year-over-year change in retail sales in red with the scale on the right and the actual sales numbers in black with the scale on the left.