Market Update

Capital market assumptions | Q1 update

Capital markets assumptions
Q1 update I Executive summary
1

The 21.5% rally of US large-cap equities over the past four months, driven by the recent AI boom, has been nothing short of spectacular. Typically, such velocity occurs after markets have experienced a recession and have begun pricing in the early stages of a recovery, with the only other instance in the post-WW2 era (1945) coinciding with the dot-com bubble.

2

Concentration risk is one that occurs in many individual regional equity markets and rarely causes systemic issues for markets globally. However, it has led to significant sell-offs, like during the early 2000s in the US. Given the size of the US market currently, concentration in a handful of equities like the “Magnificent 7” poses risks for global multi-asset investors as drawdowns can occur even without a specific catalyst.

3

While we are not claiming that this instance of concentration risk will be a harbinger of the next recession, it is a risk we are intently focusing on and diversifying away from through non-market capitalization weighted equity strategies, like factors and global equities outside of the US.

Invesco Solutions develops capital market assumptions (CMAs) that provide long-term estimates for the behaviour of major asset classes globally. 

The assumptions, which are based on a 10-year investment time horizon, are intended to guide strategic asset allocations. For each selected asset class, we develop assumptions for expected return, standard deviation of return (volatility) and correlation with other asset classes.

Our CMAs include:
  • Notable changes in our long-term asset class expectations
  • Global and local market commentary
  • Strategic and tactical asset allocation outlooks and investment implications
  • 10-year asset class estimated risk/return attribution analysis

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.