Investment managers are expressing doubts that negative interest rate policies introduced by central banks in Europe and Japan will help spur economic growth, but they also remain confident in the prospects of the U.S. equity market, according to a Northern Trust Survey.

“After two quarters of declining sentiment about the U.S. economy, investment managers had more positive views on the U.S economic outlook in the most recent quarterly survey,” the firm explains.

The survey of investment firms also gauged views on the valuation of equity markets following the global market sell-off in January and February, the direction of oil prices and the likelihood of a British exit from the European Union. “The outlook on U.S economic growth and corporate profits improved in the first quarter of 2016, despite the extreme market volatility that started the year,” explains Christopher Vella, chief investment officer for multi-manager solutions at Northern Trust. “While managers are still cautious on the outlook for U.S. corporate profits and most economic indicators, we are seeing a change from the trend of declining expectations in the second half of 2015.”

Other survey results show 37% of managers expect U.S. gross domestic product to accelerate in the next six months, up from 23% with that view in the fourth quarter of 2015. Another 57% expect U.S. GDP growth to remain stable, the survey shows, and just 6% expect GDP growth to slow—down from 13% who expected slower growth in the previous quarter. U.S. corporate profit expectations were also up, with 34% expecting an increase in earnings, up from 23% in the prior survey.

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Northern Trust finds more than half the managers polled (54%) expect inflation to increase over the next six months, “well above the long-term average of 35% for the question.”

In a note that should be encouraging to individual retirement investors and the largest pension plans alike, a strong majority of survey respondents (83%) “believe global equity markets are either undervalued or fairly valued, while 17% still view global equities as overvalued.” According to Northern Trust, managers were most bullish on emerging market equities, and 59% view this market segment as being widely undervalued. At the same time, about three in four (77%) managers view credit markets as fairly valued or undervalued.

“Despite their bullish view on emerging markets equities, managers ranked emerging market economic growth as the top risk facing equity markets for the third quarter in a row,” Northern Trust warns, “followed by U.S. corporate earnings and changes to U.S. monetary policy. Oil prices ranked fifth and the U.S. presidential primaries and election ranked eighth out of 10 on the list of risks.”

Considering global interest rates, only about a third of investment managers feel the European Central Bank and Bank of Japan policies to introduce negative interest rates as a monetary policy tool will be helpful in spurring additional economic activity in those regions. About a quarter expect the policies to reduce economic growth in these regions, leaving 43% to predict little to no impact on growth.

“A majority, 55%, believe negative interest rate policies overseas will keep 2- to 10-year U.S. Treasury note rates very low,” Northern Trust finds.

After increased volatility in a number of markets, a higher percentage of managers (22% versus 10% in the previous quarter) expect the Chicago Board Options Exchange Volatility Index (VIX) to decline over the next six months. A higher percentage, 21%, have above-normal cash levels currently in their portfolios, compared to the long-term average of 12%, suggesting a slightly defensive stance.  

The full Investment Manager Survey Report and a video on survey highlights can be found on Northern Trust’s web site at www.northerntrust.com/managersurvey.