The team at Northern Trust believes GDP will expand at a 2.5 percent clip over the next five years, which is slightly better than the 2.3 percent rate since 2013. That’s reasonably positive for an economy with 3.8 percent unemployment but not enough to rekindle the kind of inflation the Fed worries about.
So what does all this mean for financial assets? Northern Trust expects U.S. equities to return 5.8 percent over the next five years, somewhat less than historical rates. Meanwhile, other developed markets should generate 6.0 annualized gains. Emerging markets, which are in a tailspin at present, should outperform other markets and return 8.3 percent, with Asian emerging markets doing even better at 8.8 percent.
That said, Northern Trust believes emerging markets will get worse before they get better. It recently cut its allocation to that asset class by 3 percent, and moved 1 percent into investment-grade bonds and 2 percent into high yield.
Even though no one is expecting a wave of defaults in the next year, many fixed-income managers view the sector as overvalued. Browne doesn’t. One benefit of the recent corporate tax cuts is that they enhance the ability of companies to service their debt.
“Over the next year, high yield will return about 6.4 percent,” he says. “In a low inflation environment, that’s not bad.”
Looking at the national political scene, Browne isn’t making any predictions about who will be president in 2023. But he believes that the populism and nationalistic views that President Trump has voiced are not a short-term phenomenon.
The trend was rising around the world before the 2016 presidential election and likely to remain a force for the next decade. On the American left, Senator Bernie Sanders was the only other presidential candidate in 2016 whose platform energized a huge swath of the nation. He touched many of the same issues as President Trump and still remains a major player in setting the national conversation on issues like universal basic income.
Previous presidents viewed themselves as leaders of the free world. President Trump sees his mandate as much closer to home.
The next president who follows him in either 2021 or 2025 will have to address the fears of millions who feel unprotected from globalization, technology and automation. “That’s a big change,” Browne says.