A just-published report provided an update on our expectations for global financial market returns over the next 10 years. The poor starting point for equity, bond, credit, and commodity valuations points to subpar returns on balanced portfolios over the next decade, even as the global economy expands at a reasonable pace. Moreover, key tailwinds that have benefited multi-asset portfolios over the past four decades will fade or reverse in the years ahead.
Losses in real terms on developed market long-term government bonds are inevitable, marking a major reversal of the trend over the past four decades. Global equities will also deliver subpar real returns in the decade ahead as lower P/E ratios offset decent real earnings growth, with non-U.S. markets likely to outperform. Commodities will also deliver poor real returns, even though the U.S. dollar will likely depreciate in real terms against a basket of major developed and emerging market currencies.
In sum, investors will need to lower their expectations, which will be a difficult thing to do after the spectacular performance in almost all asset markets over the past year, and with policy settings still so hyper-accommodative. Stay tuned.