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The combination of durable growth and low interest rates led to a strong year in the financial markets in 2019. Here’s a look back at equities, bonds, interest rates and real assets and a look forward on what to expect in the year ahead — and where to look for return potential.

Equity markets rebounded strongly in 2019, yet all gains came from valuation expansion, not earnings growth.

In 2020, markets should return to positive earnings growth with U.S. equities offering the greatest risk-adjusted return potential.

Fixed Income

Bond market returns were robust in 2019, benefiting from lower interest rates and tighter credit spreads.

In 2020, continued low rates and tight credit spreads should support returns. Looking forward, we favor high-yield bonds and investment-grade fixed income over cash.


Global yields fell throughout 2019 as slow growth and stuckflation forced more central bank accommodation.

We believe the Fed will be forced into even more rate cuts in 2020 to avoid yield curve inversion. We recommend taking on duration risk where appropriate.

Real Assets

Real assets were bifurcated in 2019 with global real estate and listed infrastructure outperforming natural resources.

In 2020, we remain overweight global real estate and listed infrastructure, as we expect interest rates to remain low and investors to find the income generated by these asset classes attractive.

2020 Outlook: Some Reality After the Rally
Investors should prepare their portfolios with more realistic returns in mind after a robust 2019. Learn what’s behind our 2020 forecasts.
2019 Returns Set Stage for Moderation in 2020
Equities rallied through 2019 after the Federal Reserve's about-face on interest rates in early January. In 2020, we expect positive returns across most markets, but they will be unlikely to reach the lofty levels realized in 2019.
Past perfomance is not indicative of future results.
Source: Northern Trust Investment Strategy, Bloomberg. 2019 return data through 12/31/2019. Five-year annualized data from 12/31/2014 to 12/31/2019. Index performance returns do not reflect any management fees transaction costs or expenses. It is not possible to invest directly in any index.
2020 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 tactical outlook and asset allocation for the next five years.

A shifting economic model - due to geopolitical and technological developments - will slow growth.

We see the single-digit and below-average returns from equities as global economies muddle through global growth restructuring. Overall, we expect the global economy to experience annualized real growth of 2.2% over the next five years, a decrease from last year's five-year forecast of 2.5%.

Slow Growth Expected To Continue
Our growth expectations call for a continuation of the "muddle through" environment.
Graph: Slow Growth Expected To Continue
Graph: Slow Growth Expected To Continue
Source: Northern Trust Global Asset Allocation, Bloomberg. Data from 3/31/2014 to 3/31/2019.

The fractious U.S.- China relationship will produce a cascade of geopolitical, economic and market changes.

Diplomatic and economic ties to the U.S. and/or China will drive the alignment decision for other countries, with many of them trying to appease both. We believe this will result in global economic inefficiencies that hamper growth.

Pick a Side
As U.S.- China tensions continue, other countries will have to weigh economic impacts.
Graph: Pick a Side
Graph: Pick a Side
Source: Northern Trust Global Asset Allocation, IMF Direction of Trade Statistics. Updated as of 7/7/2019. Total trade = Exports + Imports.

Muted growth in global demand and timid policy responses suggest Stuckflation is here to stay.

Global economic demand remains muted as populations continue to age, technology feeds worker insecurity (prompting greater saving) and the global economy restructures. Overall, we expect inflation to remain below central banks’ 2% target for the foreseeable future. See the chart below for country-specific forecasts.

Still Stuckflation
We believe inflation will remain below central banks' 2% target for an extended period.
Graph: Still Stuckflation
Graph: Still Stuckflation
Source: Northern Trust Global Asset Allocation, Bloomberg. Data from 3/31/2014 to 3/31/2019. All regions use core Consumer Price Index except for the US which uses core personal consumption expenditures.
Executive Power Play

Solid growth has pacified power grab concerns, but leaders are at risk of overplaying their hands.

The lesson of this theme is clear. Investors will accept – in fact, support – populist leaders as long as they do not cause undue harm through over-aggressive or anti-growth economic policy. Investors will ignore tough rhetoric and will instead focus on actions.

Populist Scorecard
Populism -- as judged by currency returns -- has been a benign force, except in rare circumstances.
Graph: Populist Scorecard
Graph: Populist Scorecard
Source: Source: Northern Trust Global Asset Allocation, Bloomberg. Currency return in office through 6/30/2019. Elected dates: Modi 5/12/2014; Widodo 7/9/2014; Erdogan 8/10/2014; Orban 4/25/2010; Bolsonaro 10/28/2018. *Returns are annualized and relative to a basket of currencies.
Monetary Makeover

Stuckflation has left central banks without a North Star and seeking relevance as their indepedence is questioned.

Central banks cannot fix today's stuckflation problem without help from policy levers outside of monetary policy. As such, they will increasingly be subservient to political agendas. The degree to which they can act will depend on their ability and willingness to do so.

Could of, would of, should of?
Degree of future easing will be driven by a combination of central banks' ability and willingess to act.
Graph: Could of, would of, should of?
Graph: Could of, would of, should of?
Source: Northern Trust Global Asset Allocation, Bloomberg. Current policy rate data as of 7/31/2019. Current balance sheet data as of 3/31/2019.
Staking Out Climate Risk

Climate risk regulatory impacts will slowly build, but with high dispersion and sporadic embracement.

While climate risk – the threat that transition or physical risks could negatively impact economic growth, inflation and investment returns – has a long lead time, we do not expect it to have a noticable impact on economic growth and inflation over the next five years. However, investment categories with direct exposure to transition risk now require special attention, notably natural resouces and global listed infrastructure.

Preparing for the Storm
Any climate risk impacts over the next five years will be mostly caused by the preparation for it.
Graph: Preparing for the Storm
Graph: Preparing for the Storm
Source: Northern Trust Global Asset Allocation.
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.
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 more than $1 trillion of assets, 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.