Joseph V. Amato, President and Chief Investment Officer—Neuberger Berman Equities

When Erik Knutzen wrote our last Asset Allocation Committee (AAC) Outlook in mid-October, he described a broad consensus in favor of risk assets over the next 12 months, tempered by short-term uncertainty that was “centered on the U.S. election and the path of coronavirus.”

November has seen encouraging news from clinical trials of two coronavirus vaccines. Others are still being tested, and each new set of successful results increases the chances of wide distribution of virus protection next year. We also have more clarity on the U.S. political landscape for the next two years, albeit with two Senate seats still up for grabs.

That is why our AAC reconvened last week for a mid-quarter meeting to reassess its views. Has clarity on these two issues heightened our risk appetite for 2021?

It is more accurate to say that the AAC has confirmed many of its existing views. We were already positive on equities and credit over government bonds, and we were turning a slight bias to quality growth into a more constructive view on cyclical and economically sensitive assets. We anticipated a consolidation of the recovery already underway.

So why not tilt more decisively toward risk assets and cyclical exposures? Because, as we discussed while putting together the 10 broad themes for last week’s Solving for 2021, we still face short-term hurdles and longer-term uncertainties.

First, we think a $500 billion-plus fiscal stimulus package, with income replacement and support for state and local government, could pass before the administrative transition (if not during the lame duck session, then soon thereafter), that would still be modest next to what was anticipated under a “blue sweep” of the U.S. government. Further consensus could be more difficult, not least because upbeat economic data, the resilient consumer and the reopening of the economy as people learn to live with the virus raise questions about whether the U.S. actually needs more stimulus.

Second, while vaccine success is potentially great news for the economy in the second half of 2021, until then the story is about dealing with the current surge of new infections, followed by the logistical and behavioral challenges of distributing the vaccines and persuading people to accept them.

And third, while we do think inflation is going to rise up the agenda for investors next year, as our top theme in Solving for 2021 puts it, we still believe the longer-term outcome will be a return to secular stagnation.