Entering text into the input field will update the search result below

Recoveries Are Rarely Straight Lines

Neuberger Berman profile picture
Neuberger Berman


  • The consensus has been disturbed by inflation fears, raising worries about tighter monetary policy, higher bond yields and the interest rate sensitivity of equity markets.
  • When the primary cause of equity market volatility is rising rates, the traditional portfolio diversifiers, government bonds, are unlikely to offer protection.
  • At the start of the year, we were concerned about the level of short-term consensus even though we ultimately agreed with broad consensus views over the 12-month horizon of 2021.

By Erik L. Knutzen

We believe more volatility is likely, and think investors should diversify against it but also use it to lean into the new cycle.

As we came into 2021, two big things were on our minds in the Multi-Asset Class team.

The first was the risk inherent in the strong investor consensus for an early cycle recovery as economies reopened and stimulus gained traction.

The second was how this reminded us of the beginning of 2010, a year that started with post-crisis optimism and ended with global equities up by 10%, but also endured a 12% drawdown.


Over recent weeks, our first concern has been justified. The consensus has been disturbed by inflation fears, raising worries about tighter monetary policy, higher bond yields and the interest rate sensitivity of equity markets.

Once a consensus has been challenged, as it was in 2010 by the Eurozone crisis, volatility tends to follow. And while we have experienced some volatility, particularly in Treasuries and interest rate-sensitive large-cap growth stocks, at the stock market index level so far this year we have seen only a 3.5% drawdown at the end of January and a 4% drawdown since mid-February.

That's a long way from the swoons of 5% and 10%-plus that we got in 2010, and indeed the level of volatility the equity index option market is pricing for today. The CBOE S&P 500 Volatility Index (VIX), after several years at subdued levels, has priced for 20%-plus annualized U.S. equity volatility since its spike last March. That is consistent with the dips we saw in September and late October. Even accounting for the premium baked into option pricing, it implies that the market should anticipate similar 5 - 10% drawdowns still to come.

With that in mind, we think investors ought to

This article was written by

Neuberger Berman profile picture
Neuberger Berman, founded in 1939, is a private, independent, employee-owned investment manager. The firm manages a range of strategies—including equity, fixed income, quantitative and multi-asset class, private equity and hedge funds—on behalf of institutions, advisors and individual investors globally. With offices in 23 countries, Neuberger Berman’s team is more than 2,100 professionals. For five consecutive years, the company has been named first or second in Pensions & Investments Best Places to Work in Money Management survey (among those with 1,000 employees or more). Tenured, stable and long-term in focus, the firm has built a diverse team of individuals united in their commitment to delivering compelling investment results for our clients over the long term. That commitment includes active consideration of environmental, social and governance factors. The firm manages $323 billion in client assets as of March 31, 2019. For more information, please visit our website at www.nb.com.For important disclosures: https://www.nb.com/disclosure-global-communications  Contact Us: Advisor Solutions (877) 628-2583 advisor@nb.com RIA & Family Office (888) 556-9030 riadesk@nb.com

Recommended For You

Comments (1)

Good article. Agree, while the market is rearranging there could be a lot of volatility which is multiplied buy the excess of liquidity. Some of these fluctuation could be very destructive if enter in resonance with bad news
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.