The Pulse

Strong Economic Growth Likely As Vaccination Reopens Economy

Muted investment returns expected, U.S. high yield is a sweet spot amid continued low rates

A new study from Northern Trust shows that positive returns should be expected across most equity markets in 2021, but they will be unlikely to reach the surprisingly robust levels realized in 2020. View Northern Trust’s 2021 Outlook report here.


CHICAGO & LONDON–(BUSINESS WIRE)–Northern Trust, a leading global asset manager with $1.3 trillion in assets under management, expects strong economic growth as Covid-19 vaccination reopens dormant parts of the economy and pent-up demand fuels consumer spending.

“We expect positive returns across most equity markets in 2021, but given already strong market valuations they will be unlikely to reach the surprisingly robust levels realized in 2020,” Northern Trust Chief Investment Officer Bob Browne said. He added, “We anticipate interest rates remaining low and recommend investors take on duration risk where appropriate.”

These views are part of Northern Trust’s 2021 Outlook. This report builds off the firm’s long-term Capital Market Assumptions report, a forward-looking, historically aware five-year forecast that guides the firm’s strategic asset allocation recommendations.

The forecasts within the outlook reflect the effect of the pandemic, which will still loom large as near-term growth will be muted by social distancing and other restrictions globally — but the markets will take comfort in the high likelihood of major vaccination progress by mid-year.

Inflation Stays Stuck

For the fifth consecutive year, “Stuckflation” is one of the themes behind expectations in Northern Trust’s outlook – defined as prolonged subdued inflation. “While there’s a risk that increased economic demand will test our Stuckflation theme, we expect inflation to remain at or below central bank targets,” said Wouter Sturkenboom, chief investment strategist for Europe, Middle East, Africa and Asia-Pacific at Northern Trust Asset Management.

High Yield Found Most Attractive

The 2021 Outlook predicts a V-shaped recovery, with U.S. high yield bonds offering investors a sweet spot among returns that are expected to be moderate among most other asset classes.

The firm’s return forecast for U.S. high yield bonds is 4.9%. Improving credit fundamentals and declining default rates — which, when excluding retail and energy sectors, are likely to fall as low as 2% — are expected to serve as tailwinds. Its base case of interest rates declining even more, improving economic growth and a year of “reopening” should benefit credit valuations. High yield also offers the ability to participate in equity gains and mitigate losses. Furthermore, global investors continue to favor assets that provide income, which should continue to support high yield valuations.

These expectations for high yield lead to a strong conviction 3% overweight in Northern Trust’s Global Policy Model. The other two overweights, at 2% each, are global listed infrastructure and investment-grade bonds. Together, they form a slightly overweight risk slant in the model portfolio. All risk weightings reflect a fundamental investment tenet of Northern Trust: investors should get paid for the risks they take, in all asset classes and market environments.“Our current modest overweight to risk is tilted towards asset classes offering downside protection and that benefit from what we expect to be a continuation of historically low interest rates,” said Browne.

Return expectations for global listed infrastructure and investment-grade bonds are 4.7% and 1.9% respectively.

Single-Digit Equity Returns

Northern Trust’s outlook calls for mid-single-digit returns across equities in all regions: 4.9% in the U.S., 6.0% in Europe, 6.5% in Japan, and 7.9% in emerging markets. These expectations for below historic average returns are due to above-normal valuations; concerns about possible headwinds from a post-pandemic environment, including a potential return to slow growth relative to pre-pandemic levels and lingering economic hangover effects, such as delayed bankruptcies for small businesses in forbearance.

“While these factors can’t be dismissed, they need to be evaluated against the backdrop of quickly improving earnings outlooks,” Northern Trust Chief Investment Strategist Jim McDonald said. “This justifies valuations and we believe still offers investors appropriate potential reward or compensation for the current risk level of equities, particularly when you factor in there very well may be a spending surge from pent-up consumer demand built up during the pandemic.”

Our current modest overweight to risk is tilted towards asset classes offering downside protection and that benefit from what we expect to be a continuation of historically low interest rates...

The Global Policy Model is equal weight equities across all regions.

Overweight Position Also Included in Real Assets

The favorable outlook for global listed infrastructure stands out among Northern Trust’s expectation for real assets. While the firm’s 5.1% return forecast for global real estate is higher than the 4.7% for global listed infrastructure, more upside potential (and less downside risk) is seen with infrastructure, hence it’s overweight position in the Global Policy Model vs an equal weight for real estate in recognition of the fact that permanent impairment of many retail and office properties explains low valuations.

The outlook calls for a 3.0% return for natural resources amid lingering uncertainty for the sector. It has an equal weight position in the Global Policy Model.

The full 2021 Outlook is available at


Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.

Capital Market Assumption (CMA) model expected returns do not show actual performance and are for illustrative purposes only. They do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact the future returns. Stated return expectations may differ from an investor’s actual result. The assumptions, views, techniques and forecasts noted are subject to change without notice.

This material is directed to professional clients only and is not intended for retail clients. For European and Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale investors only and should not be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit This material is provided for informational purposes only. Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice.




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 US$1.0 trillion of investor assets as of September 30, 2020, 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, Belvedere Advisors LLC, 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 22 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2020, Northern Trust had assets under custody/administration of US $13.1 trillion, and assets under management of US $1.3 trillion. For more than 130 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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