Please note that our 2020 Long-Term Capital Market Assumptions were originally calculated as of September 30, 2019 and published in November 2019, and thus did not reflect recent extreme price moves in many asset markets resulting from the ongoing COVID-19 disruption. Please refer to the Executive Summary page to discover our updated assumptions as of March 31, 2020. Please reach out to firstname.lastname@example.org with any questions.
Stable long-term forecast; rising risks in the short term
- Our long-run volatility expectations remain stable. Although markets have become further entrenched in late-cycle dynamics since last year, we see little in the way of structural change to alter our long-term view for most asset classes.
- Equity market movements have become more significant moving deeper into late cycle, which translates into marginally higher equity volatility forecasts, led by the U.S.
- Portfolio construction that includes a measure of downside risk can help mitigate drawdowns — especially relevant as recession risk increases.
- Our case study finds that, compared with a conventional Sharpe ratio-based portfolio optimization, a Sortino ratio-based optimization realized lower drawdowns during market downturns.
Histogram of S&P 500 monthly returns highlights the increased frequency recently of more extreme market movements
HISTORICAL DISTRIBUTION OF U.S. LARGE CAP STOCK RETURNS