18 January 2023

2023 Long-Term Capital Market Assumptions

See the big picture with J.P. Morgan Asset Management's Long-Term Capital Market Assumptions (LTCMAs) which incorporates more than 200 asset and strategy classes.

The 27th annual edition of J.P. Morgan Asset Management's Long-Term Capital Market Assumptions (LTCMAs), which provides 10- to 15-year risk and return projections for more than 50 asset classes and strategies, explores how lower valuations and higher yields mean that markets today offer the best potential long-term returns since 2010.

In brief

  • Our 2023 return outlook stands in stark contrast to last year's. Across markets, the unwind of dislocations, notably negative policy rates and large central bank balance sheets, has been abrupt. Few asset classes emerged unscathed. But our LTCMAs deliver a brighter message: Lower valuations and higher yields mean that markets today offer the best potential long-term returns since 2010.
  • A recession or at least several quarters of subtrend growth lie immediately ahead. Still, our forecast of global trend growth over our 10- to 15-year investment horizon is unchanged at 2.20%. Despite global inflation today running at 7.30%, we raise our long-term global inflation forecast just 20 basis points, to 2.60%, and expect today's elevated inflation to subside over the next two years.
  • After policy rates normalized swiftly, bonds no longer look like serial losers. Real return forecasts for most sovereign bonds move back into positive territory, leaving bonds once again a plausible source of income as well as diversification. Higher riskless rates also translate to improved credit return forecasts.
  • Projected equity returns rise sharply. Margins will likely recede from today's levels but not reverse completely to their long-term average, and valuations present an attractive entry point. Alternatives, meanwhile, still offer appealing diversification benefits. With the U.S. dollar more overvalued than at any time since the 1980s, the FX translation will be a significant component of forecast returns.
  • Many secular themes affecting our outlook (demographics, globalization patterns, etc.) will demand higher capex – paradoxically coming just as the abundance of cheap capital of the last decade is reversing. As financial markets are called upon to efficiently allocate scarce capital, the result may be more idiosyncratic returns and lower correlations within indices.
  • The turmoil of 2022 has brought asset return forecasts close to long-term equilibrium; the 60/40 can once again form the bedrock for portfolios, with alternatives offering alpha, inflation protection and diversification. Once today's market turbulence clears, investors will have more scope to achieve long-term portfolio return objectives.

 

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