BlackRock Investment Institute | November 2024

Capital market assumptions

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Latest update to our CMAs

Our latest capital market assumptions (CMAs) capture the ongoing impact of mega forces as well as the sharp market swings seen during the third quarter, particularly in bond yields. U.S. stocks are back near record highs as August’s recession-driven selloff proved short-lived and the artificial intelligence (AI) theme broadens. U.S. Treasury yields have also risen sharply as markets pared back expectations of deep Federal Reserve rate cuts, in line with our view of higher for longer interest rates.

We focus on the big picture and the opportunities emerging from transformation. We lean into opportunities from real-economy investments. An AI-driven investment boom in data centers, semiconductor facilities, and manufacturing plants favors private market infrastructure equity. We upgrade growth-focused private markets to neutral, driven by attractive infrastructure equity valuations, while turning neutral on income-oriented private markets as tightening spreads reduce their appeal. Private credit — particularly direct lending — remains a sizable allocation, supported by a rapidly evolving U.S. financial landscape. We prefer larger allocations to Japanese equities than most investors hold. In emerging markets, we maintain an overweight to equities, with Indian equities offering fair long-term value given how they stand to benefit from the intersection of mega forces. Sticky inflation and high public debt should keep long-term yields elevated. We favor short-dated over long-dated bonds and prefer euro area and UK government bonds over the U.S.

Notes: U.S. dollar return expectations for all asset classes are shown in unhedged terms, with the exception of global ex-US Treasuries and hedge funds. Euro return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, Chinese government bonds, local-currency EM debt and private markets other than hedge funds. Sterling return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, Chinese government bonds, local-currency EM debt and private markets other than hedge funds. Japanese yen return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, Chinese government bonds, local-currency EM debt and private markets other than hedge funds. Swiss franc return expectations for all asset classes are shown in hedged terms, with the exception of EM equity, US large cap, European large cap, Chinese equities, China A-share equities, Chinese government bonds, local-currency EM debt and private markets other than hedge funds. Canadian dollar return expectations for all asset classes are shown in unhedged terms, with the exception of global corporate bonds, hedge funds and global government bonds. Australian dollar return expectations for all asset classes are shown in unhedged terms, with the exception of global corporate bonds, hedge funds, global aggregate bonds and global government bonds. New Zealand dollar return expectations for all asset classes are shown in unhedged terms, with the exception of hedge funds, global corporate bonds, global aggregate bonds and global government bonds. Chinese yuan return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, local-currency EM debt and private markets other than hedge funds. South African rand return expectations for all asset classes are shown in unhedged terms, with the exception of hedge funds. Mexican peso return expectations for all asset classes are shown in unhedged terms, with the exception of hedge funds, global government bonds. Singapore Dollar return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, local-currency EM debt and private markets other than hedge funds. Hong Kong Dollar return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, local-currency EM debt and private markets other than hedge funds. Indian Rupee return expectations for all asset classes are shown in hedged terms, with the exception of regional equity markets, local-currency EM debt and private markets other than hedge funds.

Investment perspectives

We hold an above-benchmark allocation to Japanese equities in long-term portfolios as a benign macro backdrop brightens the outlook for corporate profits.
Portfolio perspectives