2024 Capital markets expectations

February 2024

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. 2023 was a volatile year for most investors, but ultimately most asset classes experienced positive returns, including double-digit gains for many risky assets. With the notable exception of China’s markets, global bond and equity markets rallied at the end of the year, posting strong gains as inflation pressures eased and central banks appeared to be turning away from tightening policies. Below are key highlights:

  • Despite short-term interest rates climbing, the yield on most Treasury bonds finished the year near where they started it.
  • Credit spreads tightened, especially for lower quality credit such as high yield. The result is lower expected returns for many credit-oriented assets.
  • Most equity markets rallied in 2023, generally at a much faster pace than the gain in earnings. Hence many equity markets were trading at higher valuations at year-end, thus reducing their forward-looking returns.
  • Our 10-year CMEs continue to be lower than our 20-year CMEs for the vast majority of asset classes, partly due to a higher assumed “risk-free” rate in the future. The net result is a meaningful decrease in return assumptions for most assets over the 10-year horizon, with much more mixed and modest changes at the 20-year horizon.
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