Many millionaires believe the stock market will generate returns as high as 10% this year.

Northern Trust Corp.’s “2007 Wealth in America” survey of more than 1,000 individuals worth at least seven figures finds a positive outlook for the year, led by faith in corporate earnings growth.

Only 6% of those surveyed believed the market would decline this year.

In last year’s Northern Trust survey of millionaire expectations for 2006, most individuals predicted the stock market would produce a return of 6%. As it turned out, they were way off base. Last year, the S&P 500 index’s return was more than 15%.

This year, those rather bearish predictions have turned more bullish because millionaires say they expect the U.S. economic expansion to continue.

To be sure, those who remained in the bear camp cited similar reasons as last year for their dour outlook - they expect the market to flounder as a result of a worsening economic crisis, increasing federal budget and trade deficits, and the decline in the value of the dollar.

As President Bush turns in his widely criticized $2.9 trillion budget, the bearish predictions look more accurate. It’s anyone’s guess how that will manifest in market returns, however.

Still, even those with positive expectations for the coming year aren’t over-reaching for stock market results. The S&P 500 index and the Russell 2000 index were up 15.8% and 18.4%, respectively, in 2006. And many millionaires could easily have based their expectations for the year ahead on those results.

Despite the high stock market returns of last year, most millionaires surveyed by Northern Trust this year believe there will be a “positive” and “meaningful” downshift from what the market returned in 2006.

It should be noted that the majority of high-net-worth investors are oriented toward capital growth as opposed to capital preservation, as was the case last year.

Some key findings from this year’s survey include:

* Domestic equities dominate the portfolios of most millionaire investors surveyed, representing 43% of their assets and up slightly from 41% in 2005.

* Wealthy investors reduced their exposure to real-estate investments from 13% to 8%.

* International equities now comprise 10% of high-net-worth portfolios, up from 8% in 2005.

* Wealthy investors are holding as much as 13% of their assets in money-market reserves or other cash-equivalent instruments.

And the more money people have, the more likely they are to own hedge funds - households with $10 million or more in investable assets report that 31% of their portfolios are allocated to alternative investments. Meanwhile, households below the $10 million investable asset threshold maintain average alternative investment allocations of 7%.

Age also plays into hedge-fund allocation. Gen X millionaires, aged 27 to 41, have a much higher exposure to alternative investments than baby boomers, aged 42 to 60, who, in turn, have a higher allocation than mature millionaires, aged 61 and older.

Despite all this, the large majority of millionaires plan to make few, if any, changes to their asset allocation this year.

Source: MarketWatch