We find a mix of optimism and stark realities as we move into 2021.

The arrival of a New Year is often greeted with some degree of hope and cynicism—the notion that, as individuals and a society, we can work to do better, coupled with the reality that much of the baggage we hauled with us from last year is still intact. 2021 has been no exception.

The events of 2020 were ones that many of us would just as soon leave behind—the pandemic, the lockdowns, the social stresses, the politics. Markets lost value with sickening speed only to regain ground and hit new highs on optimism for a post-COVID future, even while new cases and deaths accelerated.

In 2021, serious issues remain. The pandemic rages on, and political conflict reached a crescendo with challenges to the election, shocking riots at the Capitol and the unprecedented second impeachment of Donald Trump. The country is bitterly divided, with little consensus on how to move forward.

Still, there’s the possibility that a grim winter will evolve into a more hopeful spring. Despite early missteps, vaccine distribution is in motion, with close to 20 million doses administered in the U.S. so far and, in our view, a possible 80 – 100 million inoculations by April.

Economically, the fallout has been significant, but could have been worse. Monetary and fiscal support have provided a much-needed bridge for businesses and individuals, while the adaptability of our corporate sector has been on full display.

Hinging on the successful distribution of vaccines, our Asset Allocation Committee believes that, after a slow start, we could see rapid acceleration in the economy in 2021 as the world reopens. Although this could mean further appreciation potential for stocks, a positive market consensus leaves room for disappointment, particularly given the pressure of renewed lockdowns and some chance of renewed inflation.

In this issue of Investment Quarterly, we present our market outlook and provide insights on portfolio climate risk, value stocks and tax-efficient investing. As always, we hope you enjoy our publication. Please reach out to your Neuberger Berman team with any questions regarding your portfolio or the markets.

Highlights 1Q 2021

From the Asset Allocation Committee

We anticipate economic recovery over the next 12 months tied to reopening and the continued rollout of vaccines. Potential for volatility in the first half of the year tempers our risk-on stance.

Equities: Given recent outperformance, U.S. large-cap growth stocks generally appear fully valued; cyclical shares, including mid- and small caps, may provide more opportunity. European and Japanese equities remain relatively cheap, and would likely benefit from a revival in global trade.

Fixed Income: Treasuries and other government bonds offer little yield potential, while spreads on many investment grade bonds have tightened; the risk of potential interest rate volatility has increased. Focus on credit selection and adding some high yield exposure could improve return potential.

Emerging Markets: Many emerging markets are geared to global trade, and could benefit from economic recovery and U.S. dollar weakness. Emerging market bonds are inexpensive; local-currency issues including China onshore bonds appear attractive.

Commodities: Communities could provide exposure to a surge in pent-up demand as the economy improves. Gold and other precious metals could serve as a safe haven in near-term uncertainty.

Private Equity: Current deals are generally focused on robust businesses, with risk tied to valuation rather than the pandemic. Private equity managers’ ability to improve operations may be a key advantage in the current climate.

All views are over the next 12 months unless otherwise stated. See disclosures below, which include additional information regarding the Asset Allocation Committee and the views expressed.