What Do Professional Investors Expect To Be The Primary Driver Of Equity Market Returns?

by: CFA Institute Contributors

By David Larrabee, CFA

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked professional investors what they thought would drive equity-market returns in the coming year. Whereas global equity market returns have been driven largely by central bankers and geopolitics since the 2008 collapse of Lehman Brothers, respondents to this week's poll expect monetary policy and geopolitics to have a diminished influence on stock prices in the next 12 months.

What Do You Expect To Be the Primary Driver of Equity-Market Returns during the Next 12 Months?

Nearly one-third of respondents expect economic news to be the primary driver of equity prices, with corporate earnings the second-most-favored response. Both Fed Chairman Ben Bernanke and European Central Bank President Mario Draghi have limited additional means at their disposal to further stimulate the "animal spirits" of investors, and thus it is not surprising that a majority of investors will be taking their cues from economic activity and corporate profits.

While the US economy has seen some signs of modest strengthening, particularly in the areas of housing and employment, and recent reports suggest that the Chinese economy may be stabilizing, much of Europe remains mired in a recession. And disappointing third-quarter earnings reports and lowered forecasts from bellwethers like Caterpillar (NYSE:CAT), DuPont (DD), and United Parcel Service (NYSE:UPS) are a reflection of the global economic weakness. The recent market sell-off may well be the result of investors' renewed focus on fundamentals.

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