Our 2024 expectations for annualised returns over the next 20 years (what we call our capital market assumptions) are a mixed bag. Strong gains across markets over the past year have tempered our expected returns for equities relative to our 2023 outlook. On the other hand, higher starting yields translate into improved expectations versus last year across many fixed income asset classes.

US equity return expectations are tempered by high valuations that leave little room for further expansion. Meanwhile, Europe (including UK) and Japanese equities have better valuation support and higher dividend yields relative to the US but with the dollar depreciating anywhere from 4% to 7% this past year, we see less of a tailwind from a weaker dollar. While our assumptions for emerging markets equities remain high, we have reduced our overall growth expectations, primarily due to growing concerns around China.

In fixed income, we have raised our expected returns across many areas, primarily driven by those higher starting yields. Globally, central banks have made progress toward mitigating and reversing inflationary trends. Moreover, debt sustainability is a real concern and will require lower rates in the US and other major economies.

Overall, the outlook is still bright for long-term investors and bonds are now better poised to play their role as a diversifier in overall portfolios.