JP Morgan – Long Term Capital Market Assumptions, 2024

JP Morgan has published its long-term capital market assumptions for 2024, noting that the global economy is experiencing a significant transition. The shift is from a period of disinflation, accommodative monetary policy, and cautious fiscal measures to a landscape characterized by the potential for inflation, traditional monetary policy, and increased use of fiscal tools. This transition is accompanied by the emergence of new technologies and the ongoing energy transition, which present both challenges and investment opportunities. The report highlights a slight increase in the global growth forecast to 2.4%. Inflation expectations for developed markets have also risen to 2.3%, reflecting reflation in Europe and Japan, as well as higher prevailing inflation levels. This provides central banks with more leeway to meet their inflation targets. The report also anticipates an increase in fixed income returns, with expectations of a rise in USD cash to 2.9% and global Aggregate bond forecasts to 5.1%, driven by high prevailing policy rates. In contrast, equity forecasts have been revised downward due to the recent rally in stocks. The forecast for global equities has dipped to 7.8%, although this decline is partially offset by margin and dilution assumptions. The gap between developed market and emerging market equity returns is expected to narrow, while the outlook for non-U.S. developed markets remains appealing. The report highlights alternative assets as one of the most promising areas for investors, given their demonstrated resilience to inflation and improving returns. Core U.S. real estate is expected to improve by 180 basis points to 7.5%, while private equity is expected to experience a modest decline in line with equity beta. Venture capital and direct lending forecasts, on the other hand, are anticipated to rise. Overall, the report suggests that the current environment presents opportunities for investors to build smarter portfolios. Despite a slight decline in returns, the 60/40 stock-bond portfolio in USD still offers a solid starting point for investment, and investors are encouraged to expand into alternative assets and enhance their portfolios with active alpha strategies.