Long Run Returns Monitor (Oct.)

Our monthly Long Run Returns Monitor provides our updated long-term projected returns for major asset classes, as well as a summary of the macroeconomic forecasts which underpin them. All projections in this publication are as of 22nd October 2021. A more detailed explanation of our views can be found in our annual Long Run Economic Outlook and Long Run Asset Allocation Outlook.
Oliver Allen Markets Economist
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Long Run Asset Allocation Outlook

2020s unlikely to be a rerun of the 1930s and 2000s

We anticipate that US equities will outperform long-dated Treasuries over the next ten years, even though the valuation of the stock market is even higher now than it was at the beginning of the 1930s and approaching its level at the outset of the 2000s – the only two decades in the past 100 years when US equities underperformed. The underperformance of US equities vis-à-vis long-dated Treasuries in the 1930s and 2000s (see Chart 1) followed the bursting of bubbles in the stock market. We don’t think we are in the latter stages of another bubble now, though, despite Shiller’s cyclically adjusted price earnings ratio (CAPE) for the S&P 500/ Composite being above its level on the eve of the Great Crash and only ever being exceeded in the final stages of the dotcom boom. A key reason is that the valuation of the stock market does not look stretched relative to that of the bond market. Some other hallmarks of stock market bubbles also appear to us to be missing, such as high leverage and major financial imbalances. The upshot is that, over the next ten years or so, we project that the real returns from US equities will still be positive (albeit less so than in the 2010s and 2020), whereas we forecast that those from long-dated Treasuries will be negative against a backdrop of a slow rise in nominal yields and inflation.

16 February 2021

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Long Run Returns Monitor

Long Run Returns Monitor (Nov.)

Our monthly Long Run Returns Monitor provides our updated long-term projected returns for major asset classes, as well as a summary of the macroeconomic forecasts which underpin them. All projections in this publication are as of 23rd November 2021. A more detailed explanation of our views can be found in our annual Long Run Economic Outlook and Long Run Asset Allocation Outlook.

25 November 2021

Long Run Update

COP26 a small step forward but much left to do

COP26 has progressed efforts to fight climate change, but there is still a significant gap between pledges and actual policies. Unless action ramps up this decade, countries may face a choice between accepting the costs of greater global warming or a rapid, and potentially disorderly, transition to a greener economy.

16 November 2021

Long Run Update

COP26 unlikely to alter economic outlook

The UN’s annual climate change conference, COP26, has the potential to be an important milestone but it is just one step along the path required to limit global warming. Accordingly, it will not on its own stop climate change from clouding the long-run economic outlook for many emerging markets in particular.

2 November 2021

More from Oliver Allen

Capital Daily

We expect the rise in China’s bond yields to reverse

Rather than continue its recent rise, we think that the 10-year government bond yield in China will fall back over the next couple of years, even as US Treasury yields climb further.

18 October 2021

Capital Daily

We doubt China’s slowdown will stop Treasury yields from rising

We doubt that worries about a sharp slowdown in China’s economy will prevent US Treasury yields from rising further, in contrast to what took place in mid-to-late 2015.

15 October 2021

Asset Allocation Update

Infrastructure & reconciliation unlikely to mean Q1 rerun

While the large fiscal stimulus passed in the US in the first quarter of this year appears to have been a key reason why equities there outperformed Treasuries at the time, we think that the infrastructure and reconciliation bills currently making their way through Congress point in the opposite direction.

6 October 2021
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