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Here’s a look forward on what to expect in the year ahead for equities, bonds, interest rates and real assets – and where to look for return potential.

Pent-up consumer demand driven by savings could drive a period of robust activity and take our earnings assumptions higher.

In 2021 we expect:

  • More moderate, single-digit returns across regions.

  • Robust economic activity with a consumer-spending surge.

  • Elevated valuations supported by increases in corporate earnings.
Fixed Income

Improving credit fundamentals and declining default rates continue to provide a tailwind to high yield in the year ahead.

In 2021 we expect:

  • Continued easy monetary policy, low interest rates and improving fundamentals.

  • High yield bonds to return 4.9% and investment grade bonds to return 1.9%.

  • Interest rates falling even lower.

Quantitative easing and immediate lending support, should it be needed, will continue well into the year until the pandemic is behind us.

In 2021 we expect:

  • Interest rates to remain steady as central banks globally focus on economic recovery.

  • The Fed to continue its use of tools like quantitative easing.

  • The 10-year Treasury yield to move to 0.5% from below 1.0% currently.
Real Assets

As the global economy reemerges post-pandemic, there will be a lot of pent-up demand in railroads, pipelines and airports.

In 2021 we expect:

  • Global infrastructure returns could be a positive surprise.

  • Low valuations of global real estate and natural resources equities to cushion against further losses.

  • Global infrastructure equities to return 4.7%, global real estate to return 5.1% and natural resources to gain 3%.

A Truly Wild Ride
Markets can always be volatile, but the drawdown and recovery in 2020 was one for the record books.
Past perfomance is not indicative of future results.
Source: Northern Trust Asset Management, Bloomberg. Year-to-date data through 11/30/20. Five-year annualized data from 11/30/2015 to 11/30/2020. Index performance returns do not reflect any management fees transaction costs or expenses. It is not possible to invest directly in any index.
2021 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.
Reversion to Mediocrity

After a brief breakout, global economic growth will revert to its longer term mean.

Debt-fueled demand will subside and automation will contain inflation. This will lead to continued low interest rates, especially as insatiable fixed income demand persists.

A Return to Slow Growth Form
The strong economic growth of the past year will not continue into the next five years.
Graph: A Return to Slow Growth Form
Graph: A Return to Slow Growth Form
Source: Northern Trust Asset Management, Bloomberg. Data from 3/31/2016 to 3/31/2021.
Sticking to Stuckflation

Stuckflation is being tested, but we believe it should pass the test.

This expanded mission will become more prominent as inflation fears, once again, subside. We expect central banks globally to stay on the dovish side of market expectations.

Still Stuckflation
Dislodging the longer term Stuckflation theme will take bolder action than we've seen thus far.
Graph: Still Stuckflation
Graph: Still Stuckflation
Source: Northern Trust Asset Management, Bloomberg. Data from 3/31/2016 to 3/31/2021. All regions use headline CPI as the inflation metric.
Monetary Activism

Central banks are finding new callings, such as fighting income inequality and climate change.

Investors agree, as they’ve had patience with recent high inflation. Unless we see a truly coordinated policy response, future inflation will more reflect the past decade than the past year, supporting financial markets.

Hawkish on Climate, Dovish on Policy
The ECB has become increasingly focused on climate change; other central banks are following.
Graph: Hawkish on Climate, Dovish on Policy
Graph: Hawkish on Climate, Dovish on Policy
Source: Northern Trust Asset Management, Bloomberg. *2021 through 5/31/2021.
Seeking Tech Independence

Technology is the new oil — but with greater economic security impacts.

Both sides of the West-China divide appreciate the importance of technological independence and the requisite raw materials to get there. Expect major investment toward this aim — and further economic division.

Intel Still Inside?
Semiconductor sales have spread more globally -- and production is heavily concentrated in Asia.
Graph: Intel Still Inside?
Graph: Intel Still Inside?
Source: Northern Trust Asset Management, Semiconductor Industry Association. Data as of 12/31/2019.
The Evolving Capitalist

Investors and business leaders recognize that they must evolve from today’s “winner-take-all” capitalism.

Solutions to address income gaps and the needs of all stakeholders (as opposed to just shareholders) will slowly lead to a more sustainable version of capitalism.

Labor Uprising
Labor has recently increased its bargaining power; we expect more rebalancing -- but slowly.
Graph: Labor Uprising
Graph: Labor Uprising
Source: Northern Trust Asset Management, U.S. Bureau of Economic Analysis, U.S. Department of Commerce. *Recent is the latest print for the first quarter of 2021.
Reaching Climate Consensus

A consensus — increasingly market-driven — is emerging on the importance of fighting climate change.

Investors are fueling the green transition, driving real corporate action more quickly and forcefully than politicians ever could. But difficult economic tradeoffs loom large.

Joining the Cause
Companies globally are increasingly signing up for the fight on climate change.
Graph: Joining the Cause
Graph: Joining the Cause
Source: Northern Trust Asset Management, FactSet, MSCI. Carbon emissions scores measure carbon management and efficiency, leading is defined as a score >= 7.
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 1-Year Outlook
Find out what investors should expect in the years ahead.
Download Executive Summary
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 $1.2 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.