At the same time, managers expressed doubt that negative interest rate policies introduced by central banks in Europe and Japan would help spur economic growth outside the U.S.

The survey of 100 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 "Brexit" – a British exit from the European Union – in an upcoming UK referendum.

"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," said 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."

The survey, taken March 3-18, found that 37 percent of managers expect U.S. gross domestic product (GDP) to accelerate in the next six months, up from 23 percent with that view in the fourth quarter.

Another 57 percent expect U.S. GDP growth to remain stable, and just 6 percent expect GDP growth to slow, down from 13 percent who expected slower growth in the previous quarter.

U.S. corporate profit expectations were also up, with 34 percent expecting an increase in earnings, up from 23 percent in the prior survey. A larger share of managers expect housing prices to increase over the next six months: 60 percent versus 49 percent in the fourth quarter of 2015. More than half the managers (54 percent) expect inflation to increase over the next six months, well above the long-term average of 35 percent for the question.

Following the recent market declines, 83 percent of managers believe global equity markets are either undervalued or fairly valued, while 17 percent still view global equities as overvalued. Managers were most bullish on emerging market (EM) equities and 59 percent, the highest reading since the third quarter 2014, view them as undervalued. Approximately 77 percent of managers view credit markets as fairly valued or undervalued.

Topical Questions: Negative Rates, Oil and Brexit

As the European Central Bank and Bank of Japan introduce negative interest rates as a monetary policy tool, about one-third of managers believe that negative rates will be helpful in spurring additional economic activity policies in those regions, while 23 percent expect it will reduce economic growth in these regions, and 43 percent predict little to no impact on growth. A majority, 55 percent, believe negative interest rate policies overseas will keep 2- to 10-year U.S. Treasury note rates very low.

Managers were also asked where they expect oil prices will trade in the next nine to 12 months, after West Texas Intermediate Crude dropped to less than $30 per barrel from more than $100 during the past 19 months. Only 2 percent of managers expect oil will trade below $30 again in that period, and 94 percent expect the price will be between $30 and $60.

Regarding the June 23 referendum in the United Kingdom, 82 percent of managers believe that U.K. voters will choose to stay in the EU. However, should voters opt to leave, 61 percent of managers believe it would hurt the British economy, while 35 percent expect a Brexit would have little to no impact on the UK economy.

Assessing Risks and Opportunities

Despite their bullish view on Emerging Markets (EM) equities, managers ranked EM economic growth as the top risk facing equity markets for the third quarter in a row, 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.

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

"Volatility in the markets during the first quarter created opportunities for some managers," said Mark Meisel, Senior Investment Product Manager for Multi-Manager Solutions at Northern Trust.

"Continuing an upward trend, 22 percent of managers increased their commodities exposure, up from only 7 percent in the fourth quarter of 2014. Managers are seeing improved valuations in a number of markets."

On the bull-bear indicator, information technology remained the top-ranked sector, and consumer discretionary moved up to second from third rank in the previous quarter. Among asset classes, non-U.S. developed markets, U.S. small cap equity and U.S. large cap equity followed EM equities as the highest rated, with U.S. bonds, cash, and emerging-market debt (hard currency) at the bottom of the ratings.

For its survey, Northern Trust polls 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. The survey is conducted quarterly so that Northern Trust and participating managers can examine trends in attitudes and allocations.