2023 capital markets expectations

February 2023

We update our capital markets expectations each year in January. Changes are driven by many factors, including interest rates, credit spreads, cap rates, and equity prices. 2022 was a difficult year, with losses experienced for most asset classes, as interest rates increased, spreads widened, and most risk assets declined in value. However, there is a notable silver lining to this story – increased return assumptions.

  • Bond yields increased by the largest amount since the 1990s, driving up future returns for fixed income assets.
  • Despite lower growth projections globally, the price decline experienced by equities and many other risk assets has improved their forward-looking returns.
  • The net result is the largest increase in return assumptions in our 20+ year history of creating capital market expectations (CMEs).
  • While our 10-year CMEs continue to be lower than many of our 20-year CMEs, this is no longer true across the board, especially in fixed income.