Capital Market Assumptions

Northern Trust’s 5-Year Market Forecast: Stock Returns in 4.5% - 8.9% Range

Fixed Income Returns to Be Subdued, Inflation and Rates to Remain Low

New research from Northern Trust reveals that equity returns are expected to be muted by historical standards, due to slower growth and modest margin and valuation pressures. Read the report, Capital Market Assumptions, here.

September 10, 2019 — CHICAGO & LONDON–(BUSINESS WIRE)–The global economy will experience 2.2 percent real average annualized growth over the next five years, along with controlled inflation and accommodative monetary policy, according to Northern Trust’s Capital Market Assumptions five-year outlook. The firm predicts that interest rates will remain low, with inflation continuing to be minimal as a result of continued muted global growth and timid policy responses.

Slowing growth, exacerbated by ‘Stuckflation’ and the ‘Irreconcilable Differences’ between the U.S. and China are just some of the themes Northern Trust’s Capital Market Assumptions group identified behind the trends shaping the markets and economy in the next five years – all important factors that underlie the firm’s long-term outlook.

The Capital Market Assumptions report, featuring long-term asset class return expectations and forecasts, is produced annually. Rooted in the firm’s deep capital market analysis, it informs the investment decisions and asset allocation recommendations made by Northern Trust, which as of 30 June 2019, had US$1.2 trillion in assets under management.

On a global basis, the report foresees equity returns in the range of mid-single digits and low-but-positive fixed-income returns. The highest average annualized equity return is forecast for Latin American emerging markets at 8.9 percent, with overall emerging markets at 6.1 percent. The next highest equities forecasts are for the U.K. 7.4 percent and EMEA at 6.9 percent. The lowest forecasts are for Canada and Japan, both coming in at 4.5 percent.

Equity returns are expected to be muted by historical standards, due to slower growth and modest margin and valuation pressures.

Investment Themes

The asset class forecasts are informed by six themes that Northern Trust believes are shaping the investment landscape for the coming years. The report points to geopolitical and technological developments resulting in a shifting economic model that is in turn slowing growth. The firm believes that the Globalization 2.0 moniker that has been applied to the new world order of global trading is too ambitious or optimistic. It considers Globalization 0.5 more appropriate. As such, concerns including security and inequality need to be effectively addressed before it can be confidently said that “Global Growth Restructuring,” one of the report’s themes, is firmly in place. “As with any restructuring, the global economy must endure continued slow growth pain – and risk of recession – to emerge stronger in the new world we find ourselves in,” the report notes.

A related theme is “Irreconcilable Differences,” which identifies the tense relationship between the United States and China as a major factor in “Global Growth Restructuring.”

“We expect this friction to unfortunately persist since we regard as irreconcilable their views on what constitutes the best economic model, as well as the role of government and their respective roles in global affairs,” Northern Trust Chief Investment Strategist Jim McDonald said.


“Stuckflation” remains a theme in this year’s Capital Market Assumptions report, appearing for the fourth consecutive year. It is built on, among other things, the continued failure of most central banks to meet two-percent inflation targets, along with technological innovations and troves of data enhancing price transparency and discovery.

No political leader wants anything other than easy monetary policy. As long as inflation remains stuck, they will get it...

“While we expect central banks to eventually come together to form a coordinated policy response, we don’t see it happening anytime soon,” Northern Trust Chief Investment Officer Bob Browne said.

The fact that the equity bull market has continued for over a decade, fueled in large part by pro-growth policies, has led investors to tolerate political power grabs, according to the report’s other repeat theme, “Executive Power Play.” However, this second-year version has evolved to recognize that the growth paradigm of the last decade will be challenged when growth slows or if leaders tilt their focus too much to populist movements at the expense of sensible economic policy.

The report’s fifth theme, “Monetary Makeover,” recognizes that “Stuckflation” has stripped central banks of their purpose and made it impossible to address the insufficient level of global demand. Because of this, Northern Trust believes, “central bankers will increasingly be subservient to political agendas.” The report goes on to say: “No political leader wants anything other than easy monetary policy. As long as inflation remains stuck, they will get it.”

Wouter Sturkenboom, chief investment strategist for Northern Trust in Europe, Middle East, Africa and Asia-Pacific, comments on the sixth theme, “Staking Out Climate Risk”: “Northern Trust fully expects climate risk to continue to grow in importance as an investment consideration, albeit with wide variance among countries. But, the risk is too real and too great for countries not to take heed,” he added.

The full report, which outlines the firm’s long-term asset class return expectations and forecasts for the next five years, is available at




About 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 $900 billion of investor 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. 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.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 20 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2019, Northern Trust had assets under custody/administration of US$11.3 trillion, and assets under management of US$1.2 trillion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Please visit our website or follow us on Twitter.
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