Market Update

Capital market assumptions | Q2 update

20 June 2024
Invesco
Capital markets assumptions
Q2 update I Executive summary
1

As we highlighted in the previous quarterly edition of Invesco’s Long-term capital market assumptions (CMAs), concentration in US large-capitalization equities is a risk even for moderate, globally diversified investors. We believe diversification could potentially mitigate some of this risk. However, some of the challenges that stem from overvalued concentrated equity markets are pervasive beyond the US.

2

Our CMA valuation building block model considers two critical variables when determining a fair valuation for equities: Inflation expectations, and interest rates, which we then compare to current valuations to determine whether they are likely to expand or contract over our forecast period. Both variables have an inverse relationship with valuations, making elevated valuations more difficult to justify in a macroenvironment with higher interest rates and inflation.

3

Higher valuations are likely to be challenging for equities over the long term. Relative to fixed income, equities are significantly less attractive than they were just a couple of years ago. Not all is lost for equity investors as there are areas of opportunity highlighted by our CMAs, such as in US small caps and emerging markets.

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

Related insights

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.