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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 tactical outlook and asset allocation for the next five years.
Retooling Global Growth

Companies will prioritize stability over profitability, tempering long-term global economic growth.

Companies will look to re-route supply chains, move production inside their home countries and build healthier balance sheets. After the stimulus-induced surge, we expect global growth will settle at low levels with annualized real growth of 2.6% over the next five years.

An Economic Bump Then a Slide
Economic growth will slow after an upfront bounceback from the pandemic's disruptions.
Graph: An Economic Bump Then a Slide
Graph: An Economic Bump Then a Slide
Source: Northern Trust Asset Management, Bloomberg. Data from 3/31/2015 to 3/31/2020.
Massive Monetary Toolkit

Driven by their ability to purchase securities through newly created money, central banks have massive toolkits.

The controversial Modern Monetary Theory (MMT) — which advocates for greater coordination between monetary and fiscal policy — is, in reality, already being applied. This de facto monetary-fiscal policy approach will prevent exogenous shock-driven recessions from becoming depressions.

To Infinity and Beyond?
The pandemic crisis has shown central banks have not run out of firepower.
Graph: To Infinity and Beyond?
Graph: To Infinity and Beyond?
Source: Northern Trust Asset Management, Bloomberg. Balance sheet size as of 12/31/2007, 12/31/2019 and 6/30/2020.
Stuckflation Tested

Inflation will be put to the test with several drivers seeking to push it higher, but not above central bank targets.

Despite the forces testing the low inflation environment, we believe the continued impact of technology/automation combined with a slow demand outlook will keep inflation stuck over our five-year horizon.

Still struggling to hit the target.
A confluence of developments will push inflation higher, but not above central bank targets.
Graph: Still struggling to hit the target.
Graph: Still struggling to hit the target.
Source: Northern Trust Asset Management, Bloomberg. Data from 3/31/2015 to 3/31/2020. All regions use headline CPI as the inflation metric.
One World, Two Systems

U.S. and China tensions will continue, leading to inefficiencies and the continued decline of globalization.

As an “agree-to-disagree” dynamic takes hold, both countries will hold on to their own systems. Other countries and multi-national companies will be forced to pick a side or straddle the middle ground, leading to lost economic opportunity and/or economic inefficiencies.

A high level comparison of the world's two superpowers.
China has a big population advantage over the U.S. but lags in economic and financial market metrics.
Graph: A high level comparison of the world's two superpowers.
Graph: A high level comparison of the world's two superpowers.
Source: Northern Trust Asset Management, IMF, U.S. Census Bureau, Bank for International Settlements
Reimagining Capitalism

A focus on stakeholders over shareholders may mean less profit but also a more sustainable economic system.

For everyone to believe in (some form of) capitalism, rules alleviating the “winner-take-all” dynamic must evolve. Business leaders, the ultra-wealthy and politicians representing those left behind will find a way to forge a new capitalism that works better for all.

The rich are still getting richer.
Inequality has been on the rise for decades. The pandemic may accelerate that trend.
Graph: The rich are still getting richer.
Graph: The rich are still getting richer.
Source: Northern Trust Asset Management. Right panel -- 2018 U.S. Census Bureau.
Stay Focused on Climate Risk

Mitigating climate risk will take on more urgency as the COVID-19 pandemic has shown how large, non-financial events can hurt returns.

The pandemic took the focus off climate-related issues, but the risks have not gone away. Post-pandemic economic rebuilding will force leaders to re-engage with climate risk — a headwind for some industries but a tailwind for others.

Developed Markets Taketh Away, Emerging Markets Giveth.
Developed economies are reducing carbon emissions slowly, but emerging market emissions -- notably China -- are still rising.
Graph: Developed Markets Taketh Away, Emerging Markets Giveth.
Graph: Developed Markets Taketh Away, Emerging Markets Giveth.
Source: Northern Trust Asset Management, PBL Netherlands Environmental Assessment Agency -- Trends in Global CO2 and Total Greenhouse Gas Emissions 2019.
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 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.