The impact of the fiscal cliff is going to be tempered, which will leave room for the housing market and global improvements to drive up growth in equities markets, according to the ING 2013 investment outlook.

Although Washington is “walking a tightrope,” there should be some kind of agreement by 2013, Paul Zemsky, chief investment officer at ING U.S. Investment Management, said. “We may need the markets to actually riot, meaning the S&P fall and spread product widen if we do get into this situation, but eventually politicians will do the right thing.”

With that solution, the fiscal cliff could see a negative impact of only 1% to 1.5% of GDP rather than the 3% to 4% being forecast should the U.S. fall off the cliff, according to ING.

“Once we get past that- and of course, Europe is still a bit of a challenge and there are other challenges- equities are actually looking pretty attractive,” Zemsky said. “Equities are not expensive by any stretch of the imagination,” he said, citing the price to earnings rations of the S&P 500 and the All Country World Index.

Moreover, housing is poised for growth in the year ahead, Zemsky said. The Home Builders’ Survey, a monthly measure of builders’ sentiments about demand in the market, has improved since late 2011 to a post-Lehman high, which could benefit consumer confidence and help job growth.

“It has a big wealth affect,” Zemsky said. “When consumers feel their price of their home isn’t going down anymore they’re more likely to spend money. It also provides mobility in the labor market as people can sell their home and leave an area where they don’t have a job to go to a place where they do have a job.”

Car sales are one leading indicator where Zemsky said he sees a lot of pent-up demand. Auto sales have been below the long-term average since the 2000s as the age of the U.S. light vehicle fleet has risen over past years. But ING is forecasting that number is due for a turnaround, and auto sales could rise as much as 15.6 million at a seasonally adjusted annual rate by late 2013.

“As they become more confident, it becomes a self-fulfilling prophecy," he explained. "People get more confident; they buy more cars. Auto companies hire more people; that leads to more jobs. People get more confident again. That leads to a positive cycle rather than a negative cycle that we’ve gotten used to."

According to ING, Europe has bottomed out as governments contract less and less and a combindation of factors such as increasing exports to China will help improvement. As such, Zemsky has started exposing a much larger percentage of client portfolios keeping in line with the All Country World Index, which has about 40% exposure to Europe and Japan

"At times we have been unweight, but we are equal weight now," he said. "We do not anticipate going underweight again, for a while."

Likewise, investors should be more cautious about fixed income going forward, according to Christine Hurtsellers, chief investment officer for fixed income and proprietary investments at ING. She said that tactically speaking, she owned less than 3% of high yield fixed income positions, the lowest she has owned in three-and-a-half years.

“The strategic view is that the market is underestimating that things are just falling into place in a global and beautiful way,” she said. “[With] European tail risk diminishing and the housing market bottoming, I think that’s a profound turnaround.”