J.P. Morgan Unveils 2025 Long-Term Capital Market Assumptions, Highlighting Strong Foundations for 60/40 Portfolios and Opportunities to Enhance Returns Through Active Management and Alternatives

Rhea-AI Summary

J.P. Morgan Asset Management has released its 2025 Long-Term Capital Market Assumptions (LTCMAs), providing a 10-15-year outlook for returns and risks across asset classes. The forecast annual return for a USD 60/40 stock-bond portfolio is projected at 6.4%, slightly lower than last year but above the long-term average. The report highlights opportunities to enhance returns through active management and alternative assets.

Key findings include:

• Higher policy rates reinforcing strong bond returns
• A generational opportunity in global real estate
• Optimistic growth projections for developed markets
• Significant impact of AI on productivity and economic growth

The LTCMAs provide detailed return assumptions for various asset classes, including fixed income, equities, and alternatives, serving as a guide for investment decisions and portfolio construction.

Positive

• Forecast annual return for USD 60/40 stock-bond portfolio projected at 6.4%, above long-term average
• Opportunities identified to enhance returns through active management and alternative assets
• U.S. core real estate return assumptions surged to 8.1%
• Developed market growth forecasts modestly upgraded
• AI projected to boost developed market growth by 20bps annually
• U.S. intermediate Treasuries expected to return 3.8%, long Treasuries 5.2%
• U.S. large cap equities expected to return 6.7%
• Global equities projected to return 7.1% (USD)
• Private Equity return assumption increased to 9.9%

Negative

• Forecast annual return for USD 60/40 stock-bond portfolio slightly lower than last year
• U.S. large cap equities return expectation down from 7.0% last year to 6.7%
• Emerging markets equities return expectation decreased due to lower growth expectations in China

Insights

Financial Analyst

J.P. Morgan's 2025 Long-Term Capital Market Assumptions (LTCMAs) provide a comprehensive outlook for investors, with several key takeaways:

• The projected 6.4% annual return for a USD 60/40 stock-bond portfolio over the next 10-15 years is slightly lower than last year but remains above the long-term average.
• Opportunities for enhanced returns through active management and alternative assets are highlighted, emphasizing the importance of diversification.
• Long-term growth outlook has improved, driven by capital investment, AI advancements and fiscal activism.
• Inflation is expected to be slightly higher than pre-pandemic levels, but lower than last year's forecasts.
• U.S. core real estate return assumptions have surged to 8.1%, indicating a strong opportunity in this sector.

These projections suggest a favorable environment for investors who can navigate the complexities of the market and leverage diverse asset classes. The emphasis on AI's potential 20bps boost to developed market growth could be particularly impactful for technology-focused portfolios.

Market Research Analyst

The 2025 LTCMAs from J.P. Morgan offer valuable insights for investors:

• U.S. large cap equities are expected to return 6.7%, down from 7.0% last year, with valuations acting as a 1.8% drag on returns.
• Global equities projection of 7.1% (USD) suggests potential opportunities outside the U.S.
• Emerging markets equities forecast at 7.2% (USD) indicates slightly lower growth expectations in China.
• Private equity return assumption of 9.9% reflects optimism in technology and AI sectors.
• Infrastructure investments, with a 6.3% projected return for global core, offer stability and essential services exposure.

These projections underscore the importance of a diversified portfolio, with particular emphasis on alternative assets and international markets. The report's focus on AI and technology adoption as growth drivers suggests potential outperformance in these sectors, which could benefit JPM's asset management business.

NEW YORK, Oct. 21, 2024 /PRNewswire/ -- J.P. Morgan Asset Management today released its 2025 Long-Term Capital Market Assumptions (LTCMAs), providing a comprehensive 10-15-year outlook for returns and risks across asset classes as the forces that drove volatility in recent years abate. These market assumptions guide investment decisions and conversations with institutional and high-net-worth clients, providing actionable insights for building resilient portfolios amid higher growth, increased capital investment, and rising geopolitical tensions.

In this 29th edition of the LTCMAs, the forecast annual return for a USD 60/40 stock-bond portfolio over the next 10–15 years is projected at 6.4%, reflecting a slight dip from last year, while remaining above the long-term average. However, the report identifies significant opportunities to enhance this outlook, particularly through the use of active management and the inclusion of alternative assets. The long-term growth outlook has risen, driven by robust capital investment, advances in artificial intelligence (AI) and automation, and fiscal activism.

"Our Long-Term Capital Market Assumptions provide a roadmap for navigating the complexities of today's markets," said John Bilton, Head of Global Multi-Asset Strategy, J.P. Morgan Asset Management. "This year's findings underscore the value of active management and alternative asset classes in generating alpha and diversification. Investors are encouraged to incorporate assets that can navigate inflation shocks and fiscal risks, with bonds remaining essential for diversification."

"The global economy is entering a new era marked by higher fiscal spending, increased capital investment, and stronger economic growth," said Dr. David Kelly, Chief Global Strategist, J.P. Morgan Asset Management. "The overall outlook remains optimistic with investment levels picking up and rates normalizing. While inflation is expected to be slightly higher than pre-pandemic levels, the starting point for inflation is lower than in last year's forecasts, leading to modestly lower long-term inflation assumptions."

This year's report reinforces the importance of building goal-aligned portfolios that can withstand market volatility and seize growth opportunities," said Monica Issar, Global Head of J.P. Morgan Wealth Management Multi-Asset and Portfolio Solutions. "With significant opportunities emerging in infrastructure and other real assets, investors can leverage these sectors for stable income and to hedge against inflation."

Key findings include:

• Inflation and Interest Rates: While inflation is expected to be slightly higher than pre-pandemic levels, the starting point for inflation is lower than in last year's forecasts, leading to modestly lower long-term inflation assumptions. Higher policy rates are projected to reinforce strong bond returns, with a cycle-neutral cash rate forecast of 2.8% for the U.S from 2.5% last year.
• Opportunities in Private Markets: The report identifies a generational opportunity in global real estate, with U.S. core real estate return assumptions surging to 8.1%. Private equity and venture capital are expected to benefit from increased capital spending and technology adoption, despite higher financing costs.
• Optimistic Growth Projections: Developed market growth forecasts have been modestly upgraded, with the U.S. expected to benefit from strong migration and AI-driven productivity gains. The report anticipates stronger economic growth driven by robust capital investment, technological advances, and fiscal activism.
• Impact of Artificial Intelligence (AI): AI is expected to play a significant role in boosting productivity and economic growth. The report projects a 20bps annual boost to developed market growth from AI, potentially conservative given the transformative potential of the technology. The trend is expected to support higher revenue growth and margins, especially for U.S. large cap companies.

The report also outlines the following asset class return assumptions:

• Fixed Income
  • U.S. intermediate Treasuries are expected to return 3.8%, while long Treasuries are expected to return 5.2%. Higher yields support these returns.
  • U.S. investment grade credit is forecast to return 5%, with spreads tightening due to higher growth expectations and improved creditworthiness.
  • U.S. high yield credit is expected to return 6.1%, with a fair value spread of 475bps, reflecting a normalization drag on returns.
• Equities
  • U.S. large cap equities are expected to return 6.7%, down from 7.0% last year, even as valuations act as a 1.8% drag on returns over the investment horizon. The U.S. market's high quality characteristics and sector mix (including a powerful technology sector) may allow U.S. stocks to stay more expensive than their peers.
  • Global equities are projected to return 7.1% (USD), with non-U.S. markets offering more attractive cyclical starting points and benefiting from currency appreciation.
  • Emerging markets equities are expected to return 7.2% (USD), with a slight decrease due to lower growth expectations in China.
• Alternatives
  • Private Equity: The return assumption for private equity is 9.9%, reflecting a slight increase due to a more favorable exit environment and higher growth opportunities in technology and AI.
  • Real Estate: U.S. core real estate is expected to return 8.1%, up from 7.5% last year, driven by attractive entry points and higher yields. European core real estate is forecast to return 7.6%.
  • Infrastructure: Global core infrastructure is projected to return 6.3%, reflecting stable returns and the essential nature of the services provided by this asset class.
  • Commodities: The return assumption for broad basket commodities remains at 3.8%, with the energy transition and geopolitical risks influencing the outlook.

The LTCMAs are the result of a rigorous research process that combines quantitative and qualitative inputs from over 100 industry-leading portfolio managers, research analysts, and strategists worldwide. These time-tested projections cover more than 200 assets and strategies in 19 base currencies, providing a robust foundation for strategic asset allocation and long-term investment planning.

View the full 2025 Long-Term Capital Market Assumptions here.

About J.P. Morgan Asset Management

J.P. Morgan Asset Management, with assets under management of $3.5 trillion (as of 9/30/2024), is a global leader in investment management. J.P. Morgan Asset Management's clients include institutions, retail investors and high net worth individuals in every major market throughout the world. J.P. Morgan Asset Management offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity. For more information: www.jpmorganassetmanagement.com.

About J.P. Morgan Private Bank

J.P. Morgan Private Bank provides customized financial advice to help wealthy clients and their families achieve their goals through an elevated experience. Clients of the Private Bank work with dedicated teams of specialists that bring their investments and financial assets together into one comprehensive strategy, leveraging the global resources of J.P. Morgan across planning, investing, lending, banking, philanthropy, family office management, fiduciary services, special advisory services and more. The Private Bank oversees more than $2.8 trillion in client assets globally (as of 9/30/2024). More information about J.P. Morgan Private Bank is available at privatebank.jpmorgan.com.

JPMorgan Chase & Co. (NYSE: JPM) is a leading financial services firm based in the United States of America ("U.S."), with operations worldwide. JPMorganChase had $4.2 trillion in assets and $346 billion in stockholders' equity (as of 9/30/2024). The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S., and many of the world's most prominent corporate, institutional and government clients globally. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

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SOURCE J.P. Morgan Asset Management

FAQ

What is the projected annual return for a USD 60/40 stock-bond portfolio according to JPM's 2025 LTCMAs?

According to J.P. Morgan's 2025 Long-Term Capital Market Assumptions, the projected annual return for a USD 60/40 stock-bond portfolio over the next 10-15 years is 6.4%.

How does JPM expect AI to impact economic growth in developed markets?

J.P. Morgan projects that AI will boost developed market growth by 20 basis points annually, potentially supporting higher revenue growth and margins, especially for U.S. large cap companies.

What is the return assumption for U.S. core real estate in JPM's 2025 LTCMAs?

In J.P. Morgan's 2025 Long-Term Capital Market Assumptions, the return assumption for U.S. core real estate is 8.1%, up from 7.5% in the previous year.

How has JPM's outlook on U.S. large cap equities changed in the 2025 LTCMAs?

J.P. Morgan's outlook for U.S. large cap equities has slightly decreased, with an expected return of 6.7%, down from 7.0% in the previous year's assumptions.