Market undervalued? More money managers see it that way

Despite concerns about high unemployment, an increasing number of professional money managers believe that the U.S. stock market is undervalued. Indeed, about 28% of money managers described equities as undervalued in the latest quarterly survey of investment professionals by Russell Investments. In December, only 19% of manager managers thought stocks were undervalued. Likewise, Russell found that the percentage of managers describing the market as overvalued was also on the decline. In this most recent survey, conducted in February, only 13% said stocks were overvalued. That's down from 18% in the previous poll, taken in December. Of course, worries still exist. Top of the list for money managers: the unemployment rate. More than three-quarters of investment managers surveyed said they expected unemployment to be 8% or higher at the end of 2011, while 96% believed the country's unemployment rate would be at least 7%. Prior to the economic meltdown, the last time the unemployment rate was above 7% was June 1993. “The unemployment rate is high, and it's bad, and it's worse than it's been in decades,” said Erik Ogard, director of client investment strategies at Russell. The above-average unemployment rate contributed to the less bullish outlook for consumer-related sectors, according to Mr. Ogard. The two sectors most directly linked to consumer sentiment — consumer staples and consumer discretionary — were two of the four sectors that survey respondents liked the least. Manager bullishness for consumer staples fell to 38% in the most recent survey, from 40% in December. Optimism over the consumer discretionary sector dropped to 36%, from 38%. By contrast, money managers were most upbeat about sectors closely linked to business activity and economic growth, including a 76% bullish rating for technology, 49% bullish rating for materials and processing, and 47% bullish for energy. “High unemployment numbers have effectively stifled consumer confidence and spending,” Mr. Ogard said. “Most managers believe that the economic recovery will continue to be led by business spending rather than consumer spending.” Mr. Ogard tempered the general tone of the poll as being heavily influenced by the timing of the survey. In late February, there was still plenty of uncertainty surrounding the financial stability of Greece and whether that country's financial troubles might spread to other parts of Europe.