1. Retooling Global Growth

Especially due to the pandemic, companies will be more apt to move supply chains closer to home, or at least diversify them. This also is due to the strained China-U.S. relationship, Browne said, and companies will want to spread out their supplier network to not “be held hostage” due to a trade conflict, natural disasters or even another pandemic.

“A company is going to have to be much more thoughtful about how they grow in the wake of the pandemic or trade wars. They will have to be more focused on resiliency and ensuring stability before profitability,” Browne said. “The takeaway of that is it’s going to be more expensive [and] less efficient.”

2. Massive Monetary Toolkit

President-elect Joe Biden’s choice of former Fed chair Janet Yellen for Treasury secretary signals increased coordination between government economic stimulus and monetary policy to aid the economic recovery, Northern Trust noted in its report.

This co-opting of monetary policy by the government is “remarkable,” Browne said, especially as Fed Chairman Jay Powell and other global central bankers seem not to think they are “caught up in this.”

Also, the Fed most likely will allow the economy to “run hot” to push along the economic recovery. Browne sees the Fed being more accommodating and allowing rates to drop to zero, while showing hesitancy in being “preemptive going forward.”

3. Stuckflation Tested

Browne said Northern Trust isn’t worried about inflation. The firm's focus with respect to this issue “really talks about the secular forces that kept inflation low prior to the pandemic,” he explained.

Overall, the effects of slow growth, technology and automation being experienced today "will keep inflation at or below central bank targets" worldwide, according to Northern Trust.

A potentially major challenge: Trade wars could dampen the enthusiasm for globalization and shift demand curves.

4. One World, Two Systems

Northern Trust expects the Biden administration to keep up trade pressure on China, Browne said. This is especially true as the West realizes — especially after Chinese President Sullivan Financial Planning — that China will not turn into a Taiwan or South Korea and “become a more liberal, engaged and proactive part of the global system,” he said.

That means the “two largest economies in the world just can’t ignore each other. They can’t stop trading with each other. They need us, we need them. But the basic takeaway is at best we’ll be strategic competitors, and at worst we’ll be strategic threats,” Browne said.

The relationship between these two countries will be a critical issue for the 21st century, Browne said. And “it doesn’t necessarily get better with President-elect Biden [in office].”

(Photo: Shutterstock)

5. Reimagining Capitalism

Simply put, companies will continue to increase the prioritization of social issues, sometimes at the expense of profits and shareholders.

The “harsh rule of capitalism” is no longer sustainable, Browne said. “It may be sustainable from an economic perspective but it’s no longer acceptable to see so much wealth creation … in the hands of so few, whether they deserve it or not.”

He added that diversity in the workforce also is front and center, and companies are “proactively responding to pressure” from society.

(Photo: Shutterstock)

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6. Staying Focused on Climate Risk

“There’s no shortage of examples to look at and see what’s happening to the natural environment,” Browne noted, pointing to the fires in California and Australia and a record hurricane season. “Further, countries like Japan, South Korea and even China have pledged to be carbon-free or emissions zero at least for automobiles anywhere from 2035 to 2050.”

He added that environmental, social and governance funds have “performed quite nicely” and that this should continue, especially with a Biden administration that has made environmental issues a key part of its doctrine.

(Photo: Thaikrit/Shutterstock)

U.S. equities, high-yield bonds, emerging markets and listed infrastructure should have a decent 2021 based on several factors outlined by Bob Browne, Northern Trust executive vice president and chief investment officer.

Also, he said, 10-year bonds will gravitate toward 50 basis points while the Federal Reserve will remain on hold and continue its use of quantitative easing. And U.S. growth should be around 4%, a welcome return after a negative 2020.

Northern Trust sees a V-shaped recovery into 2021, especially as businesses reopen and pent-up demand is released, but stocks probably won’t see the “surprisingly robust” returns of the 2020 stock market.

“For five years in a row we’ve had double-digit returns in U.S. stocks, [which] have returned 14% annually for five years,” he told ThinkAdvisor, noting that this year the return will be about 5%, “but going forward, the next five years should bring 25% in gains overall.”

Emerging markets had a rebound in 2020, returning 10% through Dec. 15, and should see a 7.9% return in 2021, largely due to exposure to China, which Browne said will probably have growth of 8% next year.

Having been bullish on high-yield bonds for some time, Browne said “The low-rate environment is going to be good for both high-yield and investment-grade bonds. Cash will be a drag on the portfolio return … We don’t expect the Fed to move in the next year or really anytime over the five-year horizon.”

Northern Trust also sees taking moderate investment risk with a tilt toward listed infrastructure companies, such as those in airports, pipelines and railroads.

Pillars of Outlook

In the 2021 outlook, Browne discussed six themes Northern Trust focused on. Here are snapshots of those:

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