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STABLE LONG-TERM FORECAST; RISING RISKS IN THE SHORT TERM

IN BRIEF

  • 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.

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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
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Source: Bloomberg, J.P. Morgan Asset Management; data as of July 31, 2019. For illustrative purposes only.


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Examine our return projections by major asset class, their building blocks and the thinking behind the numbers.
 
 
 
 
 


2020 Long-Term Capital Market Assumptions

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