ING U.S. Investment Management CIOs Forecast 8-10% Rise to S&P 500 in 2013
Positve Year Expected for Emerging Market Equities
Senior Bank Loans, High Yield and EM Bonds Favored in Fixed Income
Investors Face Possibility of Markets Pricing in Interest Rate Risk Later in 2013
While U.S. markets may face considerable volatility between now and yearend, there will be modest growth in 2013 and an 8-10% rise in the S&P 500, according to chief investment officers from ING U.S. Investment Management. The impending “Fiscal Cliff” issue will continue to impact equities this year, but, once that issue is resolved, a less choppy market is expected in 2013, with a yearend target for the S&P of between 1550 and 1600. The senior investment professionals predict GDP at between 2 to 3%.
“The U.S. will get past the Fiscal Cliff, and there will be more clarity in the market next year,” said Paul Zemsky, Chief Investment Officer of Multi Asset Strategies. “Domestic equities will benefit from the strengthening in the housing sector as well as from improvements in the labor market. Meanwhile, Europe may continue to struggle with its economic issues for several months, but may well come out of its recession in the first half of the year.”
Zemsky said that the U.S. market may favor value stocks, which should be playing catch up after some years of underperformance, and this trend could bode well for the financial sector. Emerging market equities will be another bright spot next year, he commented, owing to such factors as China’s easing of monetary policy, its intentions to boost fiscal stimulus and the expected change in government leadership.
“China will not have a hard landing, and this is very helpful for other emerging market countries,” said Zemsky. “A healthy Chinese economy means other emerging market nations should continue to enjoy strong exports, helping to fuel overall growth in emerging market economies.”
In fixed income, the team prefers high yield and emerging market debt as well as senior bank loans and cautions that a changing interest rate environment later in 2013 may cause volatility. Christine Hurtsellers, Chief Investment Officer of Fixed Income and Proprietary Investments, indicated that, over the next several months, spread sectors will be a good place to earn income as central bank policy remains very accommodative. The higher quality end of the high yield market continues to be well positioned, with resilient fundamentals and low default rates. Emerging markets are poised to benefit from recent monetary and fiscal accommodation and also present good value and opportunity. Nonetheless, later in 2013, Hurtsellers foresees the prospect of economic growth producing volatility for many fixed income sectors, including the spread sectors and U.S. government securities.
“The possibility of economic growth persisting next year is very real and could lead to a reduction of the current, ultra-easy monetary policy,” Hurtsellers said. “This change could produce volatility as the market prices in the possibility of higher rates not only in U.S. government securities, but also in the spread sectors that have been favored by investors over the last few years.”
In this changing environment, Hurtsellers notes that senior bank loan investments will be attractive since they are designed to reset their yields to reflect current interest rates. Commercial mortgage backed securities (CMBS) and non-agency mortgage securities may also fare particularly well as they benefit from continued improvements in U.S. commercial and residential property markets.
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About this publication
ING U.S. Investment Management periodically publishes market forecasts addressing developing trends in U.S. and international capital markets. The views expressed in this publication are solely those of the individuals named and do not necessarily reflect the views of ING Group, ING U.S. or ING U.S. Investment Management.
About ING U.S.
ING U.S. constitutes the U.S.-based retirement, investment and insurance operations of Netherlands-based ING Groep N.V. (NYSE: ING). In the U.S., the ING U.S. family of companies offers a comprehensive array of financial services to retail and institutional clients, including retirement plans, IRA rollovers and transfers, stable value, institutional investment management, mutual funds, alternative investments, life insurance, employee benefits, fixed and indexed annuities and financial planning. ING U.S. holds top-tier rankings in key U.S. markets and serves approximately 13 million customers across the nation. For more information, visit http://ing.us.
About ING U.S. Investment Management
ING U.S. Investment Management (ING U.S. IM) is a leading active asset management firm. As of September 30, 2012, ING U.S. IM manages approximately $179 billion for both affiliated and external institutions as well as individual investors. ING U.S. IM has the experience and resources to invest responsibly across asset classes, geographies and investment style. Through our global asset management network, we provide clients with access to domestic, regional and global investment solutions. For more information, visit www.inginvestment.com.
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