Does a change in the weather forecast at the Federal Reserve signal an end to the early stage of this recovery cycle?

Since November, financial markets have been “hanging ten” on a swell of cyclical, value and small-cap stocks, and rising Treasury yields. Crosswinds started to grow in the second quarter, however, and a change in the weather forecast from the Federal Reserve brought choppiness into markets. The Asset Allocation Committee expects that to persist, but on a 12-month view we still think the economic re-opening waves are rideable and that potential volatility is an opportunity to add portfolio risk.

After The Financial Crisis Of 2008 – 09, Cyclical Stocks Outperformed Until 2011

AAC 2 pager - Cyclical Stocks Outperformed 

Source: FactSet. Data as of June 23, 2021. The 2009 – 2011 series begins on March 2, 2009; the 2020 – 2021 series begins on April 1, 2020. Nothing herein constitutes a prediction of future economic or market environments. Due to a variety of factors, actual events, including the characteristic of economic or market environments may vary significantly from any views expressed. Past performance is not indicative of future results.


  • The AAC maintained its overweight views on U.S. small caps, non-U.S. developed markets and emerging markets due to their higher gearing to global economic recovery.
  • The AAC upgraded its view on U.S. large caps to neutral and retains a preference for value and cyclical stocks.
  • The recent pullback in valuations of reflation-and-recovery assets accounts for some of the upgrade decision; it also adds exposure to defensive and growth stocks to our view, which helps to balance our slightly higher-conviction view on equities overall.

Fixed Income

  • The AAC downgraded its view on investment grade to underweight.
  • The AAC maintained its overweight view on high yield, with a preference for floating-rate loans, but the relative valuation case for fixed income in general has become more difficult to make after corrections in some parts of the equity markets.
  • The AAC maintained its overweight view on emerging markets debt, as the one part of the fixed income market that has improved its relative valuation over recent months.

Real and Alternative Assets

  • The AAC maintained its overweight view on commodities, given reflationary forces.
  • The AAC maintained its underweight view on hedged strategies in general, but noted growing opportunities in merger event-driven, distressed and insurance-linked strategies.
  • The AAC maintained its overweight view on private markets: in private equity, operational enhancements to businesses can address some valuation concerns and create value away from the volatility of the public markets; the Committee became more constructive on private real estate as economic re-opening and inflationary pressures support the category.

Market Views: Based on 12-Month Outlook for Each Asset Class

Market Views 

As of 3Q 2021. Views shown reflect near-term tactical asset allocation views and are based on a hypothetical reference portfolio. Nothing herein constitutes a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. See disclosures at the end of this publication, which include additional information regarding the Asset Allocation Committee and the views expressed.

About the Asset Allocation Committee

Neuberger Berman’s Asset Allocation Committee meets every quarter to poll its members on their outlook for the next 12 months on each of the asset classes noted and, through debate and discussion, to refine our market outlook. The panel covers the gamut of investments and markets, bringing together diverse industry knowledge, with an average of 26 years of experience.