Despite uncertain corporate earnings, the potential threat of a U.S. "fiscal cliff" and Europe's protracted financial malaise, institutional investment managers are banking on a housing market rebound and see less downside risk for U.S. economic growth in the next six months, according to Northern Trust's quarterly survey, released Thursday.

Investment managers surveyed also expect this November's U.S. presidential election will have little effect on the markets, with 52 percent predicting a neutral impact, 28 percent a positive impact and 19 percent a negative impact from the election. Sixty-two percent of respondents say their answer was not dependent on which party wins the election.

Chicago-based Northern Trust's survey of about 100 institutional managers in mid-September indicated a significant increase in investment managers' positive expectations for the U.S. housing market. Sixty-nine percent of managers queried expect U.S. housing prices to increase over the next six months, up from 33 percent in the second quarter of 2012.

Managers also see less downside risk in U.S. economic growth. In the third quarter, 87 percent of respondents said gross domestic product growth would remain stable or accelerate, up significantly from 70 percent in the second quarter. Managers' job growth outlook has also improved, with 57 percent expecting job growth to remain stable and another 25 percent anticipating a pick-up in growth over the next six months. Eighteen percent said job growth would decelerate, down from 40 percent who held that view in the second quarter survey.

Investment managers also predict the third round of quantitative easing in the U.S. will have a positive impact on the markets, according to 62 percent of respondents. However, the U.S. debt ceiling and potential impact of a "fiscal cliff" are considered real risks to equities over the next six months, while the European debt crisis continues to be regarded as the top risk.

The outlook for corporate earnings remained mixed in the third quarter, with 31 percent of managers forecasting a decline in fourth quarter earnings, 28 percent expecting an increase and 41 percent predicting no change from the previous quarter. Meanwhile, rising numbers of respondents expect market volatility and inflation to move higher over the next six months.

Other survey highlights include:

69 percent think market volatility, as measured by the VIX, will increase over the next six months, an increase from 65 percent in the second quarter.

21 percent of managers believe interest rates will rise by year end, up from 18 percent last quarter and 16 percent in the first quarter.

27 percent expect higher inflation over the next six month, compared to 14 percent in the second quarter.

57 percent are bullish on emerging market equities, up from 45 percent last quarter.

74 percent reported a bullish outlook on information technology, 54 percent on the health care sector and 51 percent on the energy sector.

-Jim McConville