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ASSET CLASS FORECASTS AND RETURN EXPECTATIONS
Here’s a look forward on what to expect in the year ahead for credit markets, interest rates, equities and real assets – and where to look for return potential.
Equities

We believe developed markets can provide similar returns to emerging markets with lower risk.

In 2022 we expect:

  • Consumer demand in developed regions to support the global economic recovery.

  • More uniform gains across the major regions.

  • Earnings growth to march higher and valuations to remain elevated.
Fixed Income

Improving credit fundamentals and low default rates support high yield bonds, which have never been of higher quality.

In 2022 we expect:

  • Investment grade returns should move back into positive territory.

  • High yield returns could rival those of equity markets, with a lower risk profile.

  • Treasury yields will remain low.
INTEREST RATES

The Fed won’t hike rates as much as the markets expect — partially due to stubborn long end yields.

In 2022 we expect:

  • Interest rates will stay low, anchored by stability from longer term yields.

  • Inflation to begin declining as the year proceeds.

  • Central banks to reel in their emergency stimulus measures.
Real Assets

All real assets hold significant equity exposure and are, therefore, supported by our positive market outlook.

In 2022 we expect:

  • Global real estate should benefit from a positive credit outlook.

  • Natural resources should protect against the risks of lingering inflation.

  • Global infrastructure equities to return 3.4%, global real estate to return 6.8% and natural resources to return 4.9%.

IT WAS A VERY GOOD YEAR
While bond returns lagged inflation, risk assets more than made up for it.
Past perfomance is not indicative of future results.
Source: Northern Trust Asset Management, Bloomberg. Year-to-date data through November 30, 2021. Five-year annualized data from November 30, 2016 to November 30, 2021. Past performance is no guarantee of future results.
2022 Asset Class Outlook
Our asset class assumptions form the basis for our asset allocation framework, which combines long-term, strategic discipline with short-term, tactical flexibility.
6 Key Themes
Our Capital Market Assumptions five-year market outlook provides insight into the forces shaping the investing landscape for the coming years. Here are the six key themes driving our strategic outlook and asset allocation for the next five years.
Slow Growth Transitions

Slow transitions will likely lead to continued slow growth.

Slow transitions — pandemic to endemic; globalization to regionalization; and fossil fuels to renewables — mean investors must navigate a challenging global economy with high debt and unfavorable demographics.

GOOD WHILE IT LASTED
We think the past two years’ stimulus-boosted growth will revert to previous slow form.
Graph: GOOD WHILE IT LASTED
Graph: GOOD WHILE IT LASTED
Source: Northern Trust Asset Management, Bloomberg. Data from 3/31/2017 to 3/31/2022.
Inflation Recalibration

Just as investors thought pandemic-related inflation would settle down, the war in Ukraine forced them to recalibrate.

Automation and digitization still produce powerful disinflationary forces, but they will likely need time to overcome recent supply shocks.

THE END OF AN ERA
The Stuckflation regime is over, replaced by a period of recalibration back toward target levels.
Graph: THE END OF AN ERA
Graph: THE END OF AN ERA
Source: Northern Trust Asset Management, Bloomberg. Data from 3/31/2017 to 3/31/2022. All regions use headline Consumer Price Index as the inflation metric.
Monetary Drought

The monetary flood has evaporated, and investors must adjust for higher interest rates.

Investors must adjust for higher interest rates in their decision-making and no longer depend on central banks to rescue the economy.

NOT BEING VERY SUPPORTIVE
Central bank policy trajectory and the resulting short-term interest rates are taking a more restrictive turn.
Graph: NOT BEING VERY SUPPORTIVE
Graph: NOT BEING VERY SUPPORTIVE
Source: Northern Trust Asset Management, Bloomberg. Data as of 6/30/2022.
Regional Rebuilding Blocs

Countries are rebuilding their economic and military security by limiting their dependence on imports.

Countries are rebuilding their economic and military security by limiting their dependence on imports such as energy and technology, especially from political adversaries. Investors will decide whether — or how best — to deglobalize their portfolios accordingly.

RECONSIDERING TRADE RELATIONS
Geopolitical considerations have moved to the forefront as countries rethink trade dependencies.
Graph: RECONSIDERING TRADE RELATIONS
Graph: RECONSIDERING TRADE RELATIONS
Source: Northern Trust Asset Management, OEC, Eurostat. Import data as of most recently available calendar year (2020 for U.S. and China, 2021 for Europe).
GREEN TRANSITION STILL A GO

A focus on national energy security and high fossil fuel prices creates potential investment opportunities for renewable energy.

Russia’s energy battle with Europe triggered a search for other sources — climate-friendly or not. While this may delay the green transition, the focus on national energy security and high fossil fuel prices creates potential investment opportunities for renewable energy.

WHERE DO THEY GET THE ENERGY?
Fossil fuels still dominate energy portfolios — but we believe green (and nuclear) sources will continue to grow.
Graph: WHERE DO THEY GET THE ENERGY?
Graph: WHERE DO THEY GET THE ENERGY?
Source: Northern Trust Asset Management, International Energy Agency. Data as of 2019, the most recently available data. Data labels show percent fossil fuels.
Not So Negative

Higher interest rates bring investors closer to positive real after-inflation cash returns.

Higher interest rates — including a move out of negative territory for Europe and Japan — bring investors closer to positive real after-inflation cash returns. This is good for economic functioning and savers, but a risk for other investment returns.

NEGATIVE YIELDS IN THE REARVIEW MIRROR
The central bank shift to tighter policy lowers the expected return premium for risk assets versus cash.
Graph: NEGATIVE YIELDS IN THE REARVIEW MIRROR
Graph: NEGATIVE YIELDS IN THE REARVIEW MIRROR
Source: Northern Trust Asset Management, Bloomberg. Year-end data from 2012 through 2021; *Current as of 6/30/2022.
Capital Market Expertise
Every year, Northern Trust’s Capital Market Assumptions Working Group develops forward-looking, historically aware forecasts for global economic activity and financial market returns — which drive our asset class return expectations and inform our asset allocation decisions.
All of this comes together in the form of our long-term strategic asset class allocation suggestions, which are used by institutional and individual investors worldwide.
View our 5-year outlook

Building Smart Portfolios

Our forward-looking, historically aware investment approach powers a breadth of capabilities and solutions — spanning a full spectrum of asset class strategies and investment styles — to meet a variety of portfolio needs.
Download Our 2022 Outlook
Find out what investors should expect in the years ahead.
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Northern Trust Asset Management

Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments, so they can confidently realize their long-term objectives.

Entrusted with $1 trillion of investor assets as of June 30, 2022, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take — in all market environments and any investment strategy.

$885 Billion in A U M1

That’s why we combine robust capital markets research, expert portfolio construction and comprehensive risk management to craft innovative and efficient solutions that deliver targeted investment outcomes.

As engaged contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect, and transparency.

1Assets under management as of December 31, 2018. For the Northern Trust Asset Management entities included in the A U M total, please see disclosure at end of this page.