Canadian investment managers have boosted their outlook for Canadian and United States equities compared with last quarter in the latest Russell Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investments.

As well, almost two-thirds of Canadian investment managers consider a recession to be unlikely in the United States, and their confidence in the Federal Reserve Board’s ability to engineer a soft landing for the U.S. economy has flowed over into their sentiment toward the Canadian economy.

“Behind the gain in bullishness lies confidence that interest rates might have peaked, at least in Canada and the United States,” says Tim Hicks, Chief Investment Officer, Russell Investments. “Last quarter, managers were fearful that rising rates around the world would dampen investor enthusiasm, but now they believe that the worst might be over for equities in both Canada and the U.S.”

The number of managers bullish on broad market Canadian equities (28%) has almost doubled from the 15% recorded last quarter. Similarly, the manager sentiment for U.S. equities lifted nearly a third from last quarter from 38% to 49%. Despite these gains, the survey includes signs that managers’ fears have not disappeared. Only six% of managers surveyed believe the market is undervalued, a number that represents no change from last quarter.

Canadian Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment each quarter. Russell collected the opinions of a representative sample of senior-level investment decision-makers at Canadian equity and fixed income managers.

Additional key findings include:

Manager bullishness more than doubled for the Canadian consumer discretionary sector — rising from 13% to 30% — indicating a belief that interest rates are less likely to curb spending on non-essential items than they were last quarter. Similarly, manager outlook for financial services also doubled — from 32% to 68% — representing another instance where manager bullishness tracks those sectors that would benefit from lower interest rates.

“Canadian investment managers are displaying more enthusiasm for stocks, particularly those in sectors that are sensitive to economic change,” said Hicks.

But a significant number of managers, although they are in the minority, still demonstrated caution in their approach to the economy and the stock markets in Canada and the U.S. A third of the respondents – about the same percentage as those who are bearish on U.S. equities (33%) — believe a U.S. recession to be likely or highly likely (36%). Caution also is reflected in mangers’ relatively strong support for cash, which remains around a third of those surveyed (36%) — the same level as that of last quarter. Additionally, although bullishness for Canadian equities did double over last quarter, those bearish on Canadian equities remained at the same level as last quarter at 39%.

“The belief in a U.S. soft landing and bullishness for stocks is far from universal, and the results reflect a growing polarity between those whose outlook is optimistic and those who lean toward pessimism,” said Hicks.

Canadian bonds, meanwhile, continued their dramatic swing from last quarter as manager support for this asset class jumped to 33% from 23% and from 16% the quarter prior. But the outlook for high-yield bonds remains low, with only 10% of the managers bullish. This likely reflects a belief that the default rate on these bonds could grow in coming months.