<p>2026 Long-Term Capital Market Assumptions</p>

Key points

Economic nationalism and barriers to trade and migration weigh on global growth. But they are also galvanizing offsetting positive forces – creating silver linings. Trade uncertainty spurs fiscal activism. Labor market constraints accelerate technology adoption, providing a near-term boost to profits and a long-term boost to productivity.

Even after a year of strong equity gains, asset returns hold up. Profitability offsets valuation for global stocks. Bond returns rise amid higher term risk premia. Alternatives offer growing opportunities to strengthen portfolio resilience.

The economic landscape is shifting. But, in our view, much of what worries investors today will ultimately pale beside the silver linings we see breaking through over the long run.

Key points

Elevated tariffs and restrictive immigration policies lower our U.S. GDP growth assumption. But limited labor supply spurs investments in advanced technologies, boosting productivity gains. 

Developed market (DM) growth declines marginally, mainly on the U.S. downgrade, yet nationalism and populism, boosting defense and infrastructure spending, sustain growth elsewhere. 

Emerging market (EM) growth is stable: India’s favorable demographics and China’s productivity offset lower capital investment. 

DM inflation rises amid Europe’s fiscal spending, U.S. trade frictions and Japan’s rising inflation expectations. China weighs down EM inflation.

Key points

We continue to see solid long-term return opportunities across public markets, despite a strong rally in risk assets and a reshuffling of global growth forecasts. Our 10- to 15-year forecast sees global equities returning 7.0% annualized in USD, supported by resilient corporate profitability and rapid technological innovation.

With yields higher, we forecast the highest U.S. government bond returns since the financial crisis, at 4.6%. However, bonds’ traditional hedging role may be less reliable in this new environment.

Credit markets’ improved fundamentals and higher issuer quality leave our U.S. high yield forecast unchanged at 6.1%.

A weakening USD makes portfolio FX hedging decisions paramount, and adds a tailwind for non-USD returns.

Key points

Economic nationalism, fiscal activism and technological innovation will drive structural change in private markets and set capital in motion. Asset valuations may recalibrate and opportunities emerge.

Higher trade barriers will dampen global economic growth and raise inflation – with a mixed impact on real assets. Private equity and hedge funds benefit from looser U.S. financial regulation.

Fiscal activism allows for productivity gains; interest rates ease globally. Deal volume and valuations in the real estate market should improve, and declining rates should similarly affect private equity.

Surging investment in technology and AI adoption will drive innovation and efficiency across all private markets, particularly private equity, but also real estate and infrastructure.

Key Points

Over the next decade investors will need to grapple with inflation and rate shocks as well as economic (growth) shocks. It’s a new landscape, reflecting the interplay among the forces of economic nationalism and fiscal activism. Together they are reshaping volatility and asset class correlation expectations. 

In the face of higher and more unstable stock-bond correlations, investors need to think differently about portfolio resilience. To diversify the diversifiers, currency diversification, alpha strategies and certain alternative assets are essential.

A “60/40+” portfolio, which includes a diversified alternatives allocation, has the potential to boost overall returns and lower volatility relative to a traditional “60/40” public market portfolio.