A quarterly Northern Trust survey of investment managers reveals optimism about the economy in the first quarter, buoyed by positive expectations for housing, jobs and corporate profits in the face of across-the-board federal budget cuts went into effect on March 1.

Other key finding include:

  • 88% expect housing prices to increase over the next six months – the highest reading since the survey began in the third quarter of 2008;
  • 91% see corporate earnings either remaining the same or increasing over the next three months, while only 9% expect profits to decline – down from 32% who had a negative view in the fourth quarter of 2012.
  • 38% expect job growth to accelerate in the next six months – up from 27% who had that view at the end of 2012.
  • 46% say U.S. economic growth will accelerate over the next six months, up from 33% with that view in the fourth quarter. Only 11% think GDP growth will slow over the next six months, down from 21% last quarter.

A majority of the approximately 100 investment managers surveyed by Northern Trust in mid-March expect the automatic budget cuts to remain in place through the end of the quarter and more than one in three (37%) believe Washington D.C.’s spending reductions will have a negative impact on U.S. equity markets.
However, 56% said sequestration would have a neutral impact on markets, and the vast majority of investment managers – 96% – forecast that the economic effects will either be in line with or less severe than current economic forecasts of a 1% reduction or less in U.S. gross domestic product.

“Investment managers appear to be looking past Washington’s budgetary gridlock and expect the economy to continue to improve,” said Chris Vella, Chief Investment Officer for Northern Trust Multi-Manager Investments. “The positive sentiment of the managers surveyed over the past few quarters gives perspective to the stock market’s recent gains. Manager expectations for key economic indicators provides a basis of support for the highs reached by U.S. equity indexes.”

For its survey, Northern Trust polled investment firms that participate in its multi-manager investment programs and funds. The select group of respondents includes fixed income and equity managers across value and growth styles, with a bias toward fundamental, bottom-up stock picking strategies.